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EX-21.1 - EXHIBIT 21.1 - XILINX INCex211331201810-k.htm

 
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K
(Mark One)
þ
Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the fiscal year ended March 31, 2018
o
Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the transition period from ___________ to ____________.
Commission File Number 000-18548
Xilinx, Inc.
(Exact name of registrant as specified in its charter)
Delaware
 
77-0188631
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
 
 
 
2100 Logic Drive, San Jose, CA
 
95124
(Address of principal executive offices)
 
(Zip Code)
(Registrant's telephone number, including area code) (408) 559-7778
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each exchange on which registered
Common stock, $0.01 par value
 
The Nasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES þ NO o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES o NO þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES þ NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES þ NO o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ
 
Accelerated filer o
 
Non-accelerated filer o
 
Smaller reporting company o
 
Emerging growth company o
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES o NO þ
The aggregate market value of the voting stock held by non-affiliates of the registrant based upon the closing price of the registrant's common stock on September 30, 2017 as reported on the Nasdaq Global Select Market was approximately $12,264,427,000. Shares of common stock held by each executive officer and director and by each person who owns 5% or more of the outstanding common stock have been excluded in that such persons may be deemed affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
As of April 27, 2018, the registrant had approximately 253,404,000 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the Proxy Statement for the Registrant's Annual Meeting of Stockholders to be held on August 1, 2018 are incorporated by reference into Part III of this Annual Report on Form 10-K.
 



Xilinx, Inc.
Form 10-K
For the Fiscal Year Ended March 31, 2018
TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 

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PART I

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be found throughout this Annual Report and particularly in Items 1. "Business" and 3. "Legal Proceedings" which contain discussions concerning our development efforts, strategy, new product introductions, backlog and litigation. Forward-looking statements involve numerous known and unknown risks and uncertainties that could cause actual results to differ materially and adversely from those expressed or implied. Such risks include, but are not limited to, those discussed throughout this document as well as in Item 1A. "Risk Factors." Often, forward-looking statements can be identified by the use of forward-looking words, such as "may," "will," "could," "should," "expect," "believe," "anticipate," "estimate," "continue," "plan," "would," "intend," "project" and other similar terminology, or the negative of such terms. We disclaim any responsibility to update or revise any forward-looking statement provided in this Annual Report or in any of our other communications for any reason.

ITEM 1.
BUSINESS

Xilinx, Inc. (Xilinx, the Company or we) designs and develops programmable devices and associated technologies, including:

integrated circuits (ICs) in the form of programmable logic devices (PLDs), including programmable System on Chips (SoCs) and three-dimensional ICs (3D ICs);
Adaptive Compute Acceleration Platform (ACAP): a highly integrated multi-core heterogeneous compute platform;
software design tools to program the PLDs;
software development environments and embedded platforms;
targeted reference designs;
printed circuit boards; and
intellectual property (IP), which consists of Xilinx and various third-party verification and IP cores.

In addition to its programmable platforms, Xilinx provides design services, customer training, field engineering and technical support.

Our PLDs include field programmable gate arrays (FPGAs), complex programmable logic devices (CPLDs) that our customers program to perform desired logic functions, and programmable SoCs, which combine industry standard ARM processor-based systems with programmable logic in a single device. We also design and develop 3D ICs, which consist of a combination of FPGAs, transceivers and a wide memory interface in a single package to exceed the capacity and bandwidth of monolithic devices. In addition, earlier this year we announced a new breakthrough product category called ACAP, a highly integrated multi-core heterogeneous compute platform, which extends far beyond the capabilities of an FPGAs. Our product portfolio is designed to provide high integration and quick time-to-market for electronic equipment manufacturers in sub-segments such as wireline and data center, wireless, aerospace and defense, test and measurement, industrial, scientific and medical, automotive, audio, video and broadcast and consumer.

We sell our products and services through independent domestic and foreign distributors and through direct sales to original equipment manufacturers (OEMs) and electronic manufacturing service providers (EMS). Sales are generated by these independent distributors, independent sales representative or our direct sales organization.

Xilinx was founded and incorporated in California in February 1984. In April 1990, the Company was reincorporated in Delaware. Our corporate facilities and executive offices are located at 2100 Logic Drive, San Jose, California 95124, and our website address is www.xilinx.com.

Industry Overview

There are three principal types of ICs used in most digital electronic systems: processors, which generally are utilized for control and computing tasks; memory devices, which are used for storing program instructions and data; and logic devices, which generally are used to manage the interchange and manipulation of digital signals within a system. Xilinx designs and develops PLDs, a type of logic device. Alternatives to PLDs may include application specific integrated circuits (ASICs) and application specific standard products (ASSPs). PLDs, ASICs and ASSPs may be utilized in many of the same types of electronic systems. However, differences in unit pricing, development cost, product performance, reliability, power consumption, capacity, features and functionality, ease of use and time-to-market determine which devices are best-suited for specific applications.


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PLDs have key competitive advantages over ASICs and ASSPs, including:

Faster time-to-market and increased design flexibility. Both of these advantages are enabled by Xilinx desktop software which allows users to implement and revise their designs quickly. In contrast, ASICs and ASSPs require significant development time and offer limited, if any, flexibility to make design changes.
PLDs are standard components. This means that the same device can be sold to many different users for a myriad of applications. In sharp contrast, ASICs and ASSPs are customized for an individual user or a specific application.

PLDs are generally disadvantaged in terms of relative device size when compared to chips that are designed to perform a fixed function in a single or small set of applications. ASICs and ASSPs tend to be smaller than PLDs performing the same fixed function, resulting in a lower unit cost. However, there is a high fixed cost associated with ASIC and ASSP development that is not applicable to PLD customers. This fixed cost of ASIC and ASSP development is expected to significantly increase on next generation technology nodes. From a total cost of development perspective, ASICs and ASSPs have generally been more cost effective when used in high-volume production, and PLDs have generally been more cost effective when used in low- to mid-volume production. However, we expect PLDs to be able to address higher volume applications and gain market share from ASIC and ASSP suppliers as the fixed cost of ASIC and ASSP development increases on next generation technology nodes.

An overview of typical PLD end market applications for our products is shown in the following table:

End Markets
 
Sub-Segments
 
Applications
 
 
 
 
 
Communications & Data Center
 
Wireless
 
   3G/4G/5G Base Stations
 
 
 
 
   Wireless Backhaul
 
 
 
 
 
 
 
Wireline and Data Center
 
   Enterprise Routers and Switches
 
 
 
 
   Metro Optical Networks
 
 
 
 
•   Compute, Storage and Network Infrastructure Card Acceleration
 
 
 
 
•   High Performance Computing
 
 
 
 
 
Industrial, Aerospace & Defense
 
Industrial, Scientific and Medical
 
   Factory Automation
 
 
 
 
•   Medical Imaging
 
 
 
 
•   Machine Vision
 
 
 
 
   Augmented Reality
 
 
 
 
 
 
 
Test and Measurement
 
   Semiconductor Test and Measurement Equipment
 
 
 
 
   ASIC Emulation and Prototyping
 
 
 
 
 
 
 
Aerospace and Defense
 
   Secure Communications
 
 
 
 
   Avionics
 
 
 
 
   Electronic Warfare and Surveillance
 
 
 
 
 
Broadcast, Consumer &
 
Consumer
 
   Digital Televisions
     Automotive
 
 
 
   Cryptocurrencies
 
 
 
 
 
 
 
Automotive
 
   Driver Assistance Systems
 
 
 
 
   Driver Information Systems
 
 
 
 
   Infotainment Systems
 
 
 
 
 
 
 
Audio, Video and Broadcast
 
•   Post Production Equipment
 
 
 
 
•   "Prosumer" Video Equipment
 
 
 
 
 

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Strategy and Competition

Our strategy for growth is to displace ASICs, ASSPs and traditional PLD in the next generation electronic systems. Additionally, we focus on enabling “building the adaptable intelligent world" with an emphasis including the three major elements described below.

Data center first: Xilinx is ramping up its efforts with key data center customers, ecosystem partners and software application developers, to further enable innovation and deployments in compute acceleration, computational storage and network acceleration.
Accelerated growth in core markets: core markets consists of automotive; wireless infrastructure; wired communications; audio, video and broadcast; aerospace and defense; industrial, scientific and medical; test, measurement and emulation; and consumer technologies where the Company has deep technology leadership market traction. These core markets and customers are central to Xilinx, and Xilinx continues to drive and enable innovation to these areas.
Drive adaptive computing with the introduction of ACAP: in March 2018, we announced the ACAP, which we believe is a breakthrough product category. ACAP is a highly integrated multi-core heterogeneous compute platform that can be changed at the hardware level to adapt to the needs of a wide range of applications and workloads. An ACAP's adaptability, which can be done dynamically in milliseconds during operation, delivers levels of performance and performance per-watt that is unmatched by CPUs or GPUs. 

The costs and risks associated with application-specific devices can only be justified for high-volume or highly-specialized commodity products. Programmable platforms, alternatively, are becoming critical for our customers to meet increasingly stringent product requirements - cost, power, performance and density - in a business environment characterized by increased complexity, shrinking market windows, rapidly changing market demands, capped engineering budgets, escalating ASIC and ASSP engineering costs and increased economic and development risk.

With every new generation of FPGAs, our strategy is to increase the performance, density and system-level functionality and integration, while driving down cost and power consumption at each manufacturing process node. This enables us to provide simpler, smarter programmable platforms and design methodologies allowing our customers to focus on innovation and differentiation of their products.

Our PLDs compete in the logic IC industry, an industry that is intensely competitive and characterized by rapid technological change, increasing levels of integration, product obsolescence and continuous price erosion.  We expect continued competition from our primary PLD competitors such as Intel Corporation (Intel), Lattice Semiconductor Corporation (Lattice) and Microsemi Corporation (Microsemi), and from ASSP vendors such as Broadcom Corporation (Broadcom), Marvell Technology Group, Ltd. (Marvell) and Texas Instruments Incorporated (Texas Instruments), as well as from companies such as NVIDIA with whom we traditionally have not participated in competing markets. In addition, we expect continued competition from the ASIC market, which has been ongoing since the inception of FPGAs. Other competitors include manufacturers of:

high-density programmable logic products characterized by FPGA-type architectures;
high-volume and low-cost FPGAs as programmable replacements for ASICs and ASSPs;
ASICs and ASSPs with incremental amounts of embedded programmable logic;
high-speed, low-density CPLDs;
high-performance digital signal processing (DSP) devices;
products with embedded processors;
products with embedded multi-gigabit transceivers; and
other new or emerging programmable logic products.

We believe that important competitive factors in the logic IC industry include:

product pricing;
time-to-market;
product performance, reliability, quality, power consumption and density;
field upgradability;
adaptability of products to specific applications;
ease of use and functionality of software design tools;
availability and functionality of predefined IP;
inventory and supply chain management;
access to leading-edge process technology and assembly capacity;
ability to provide timely customer service and support; and

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access to advanced packaging technology.

Silicon Product Overview

A brief overview of the silicon product offerings is listed in the table below. These products comprise the majority of our revenues. Additionally, some of our more mature product families have been excluded from the table, although they continue to generate revenues. We operate and track our results in one operating segment for financial reporting purposes.

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Product Families
PLDs
Date Introduced
Zynq UltraScale+ RFSoCs
February 2017
Spartan-7
September 2016
Virtex UltraScale+
January 2016
Kintex UltraScale+
December 2015
Zynq UltraScale+
September 2015
Virtex UltraScale
May 2014
Kintex UltraScale
November 2013
Zynq-7000
March 2011
Virtex-7
June 2010
Kintex-7
June 2010
Artix-7
June 2010
Virtex-6
February 2009
Spartan-6
February 2009

See information under the caption "Results of Operations - Net Revenues" in Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" for information about our revenues from our product families. See also "Note 15. Segment Information" to our consolidated financial statements included in Item 8. "Financial Information and Supplementary Data" for information regarding segments.

UltraScale+ Product Families

The UltraScale+ portfolio consists of three product families, and is manufactured using Taiwan Semiconductor Manufacturing Company Limited's (TSMC) 16 nanometer (nm) FinFET+ process. The UltraScale+ portfolio includes FPGAs, 3D IC technology, Multi- Processing System on a Chip (MPSoCs) products, combining new memory, 3D on 3D and multiprocessing SoC technologies, and the industry’s first All Programmable SoC architecture with integrated radio frequency (RF) data converters.

Zynq UltraScale+ RFSoCs integrate RF data converters into an All Programmable SoC architecture. Complete with an ARM Cortex-A53 processing subsystem, UltraScale+ programmable logic, and the highest signal processing bandwidth in a Zynq UltraScale+ device, the new family provides a comprehensive RF signal chain for wireless, cable access, test & measurement, early warning / radar, and other high performance RF applications. 

Virtex UltraScale+ devices, which include industry-leading capabilities such as 32G Transceivers, Peripheral Component Interconnect Express (PCIe) Gen 4 integrated cores, and UltraRam on-chip memory technology, provide the required performance and integration needed for next generation data center, 400G and terabit wireline, test and measurement, and aerospace and defense applications.

Kintex UltraScale+ devices provide a strong price/performance watt balance in a FinFET node, delivering a very cost-effective solution for high-end capabilities including transceiver and memory interface line rates, as well as 100G connectivity cores. These devices are ideal for both packet processing and DSP-intensive functions, and are well suited for applications ranging from wireless technology to high-speed wired networking and data center.


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The Zynq UltraScale+ product family represents the Company's second generation Programmable SoC family. This new family combines seven user programmable processors cores including a 64-bit quad-core ARM Cortex A53 Application Processing Unit, a 32-bit dual-core ARM Cortex R5 Real Time Processing Unit, and an ARM Mali 400 Graphics Processing Unit. These devices enable the development of next generation embedded vision, automotive, industrial Internet of things (IoT) and communication systems by providing significant increases in system level performance/watt and any-to-any connectivity with the security and safety required for next generation systems.

UltraScale Product Families

These devices deliver an ASIC-class advantage, based on the UltraScale architecture and utilizing TSMC's 20SoC gate density process. These devices deliver next generation routing, ASIC-like clocking, and enhancements to logic and fabric to eliminate interconnect bottlenecks while supporting consistent device utilization.

Kintex UltraScale FPGAs represent the Company's second generation mid-range FPGA family. These devices offer high price-performance at the lowest power.  Kintex UltraScale devices are designed to meet the requirements for the growing number of key applications including next generation wireline and wireless communications and ultra-high definition displays and equipment.
Virtex UltraScale devices provide advanced levels of performance, system integration and bandwidth on a single chip. The largest family member delivers 4.4M logic cells, more than doubling Xilinx's industry's highest capacity device and delivering 50M equivalent ASIC gates. Virtex UltraScale devices are expected to be used in the industry's most challenging applications including: 400G communication applications, high performance computing, surveillance and reconnaissance systems, and ASIC emulation and prototyping.

28nm Product Families

The 28nm product families are fabricated on a high-K metal gate, high performance and low power 28nm process technology. These product families are based on a scalable and optimized architecture, which enables design, IP portability and re-use across all families as well as provides designers the ability to achieve the appropriate combination of I/O support, performance, feature quantities, packaging and power consumption to address a wide range of applications. The 28nm product families include:

Virtex-7 FPGAs, including 3D ICs, are optimized for applications requiring the highest capacity, performance, DSP and serial connectivity with transceivers operating up to 28G. Target applications include 400G and 100G line cards, high-performance computing and test and measurement applications.
Kintex-7 FPGAs represent Xilinx's first mid-range FPGA family. These devices maximize price-performance and performance per watt. Target applications include wireless LTE infrastructure, video display technology and medical imaging.
Artix-7 FPGAs offer the lowest power and system cost at higher performance than alternative high volume FPGAs. These devices are targeted to high volume applications such as handheld portable ultrasound devices, multi-function printers and software defined radios.
The Zynq-7000 family is the first family of Xilinx programmable SoCs. This class of product combines an industry-standard ARM dual-core Cortex-A9 MPCore processing system with Xilinx 28nm architecture. There are five devices in the Zynq-7000 SoC family that allow designers to target cost sensitive as well as high-performance applications from a single platform using industry-standard tools. These devices are designed to enable incremental market opportunities in applications such as industrial motor control, driver assistance and smart surveillance systems, and smart heterogeneous wireless networks.
Spartan-7 FPGAs offer the best performance and power consumption in their class, along with small form factor packaging to meet the most stringent requirements. These devices are ideally suited for industrial, consumer, and automotive applications including any-to-any connectivity, sensor fusion, and embedded vision.

40nm and 45nm Product Families

The Virtex-6 FPGA family consists of 13 devices and is the sixth generation in the Virtex series of FPGAs. Virtex-6 FPGAs are fabricated on a high-performance 40nm process technology. There are three Virtex-6 families, and each is optimized to deliver different feature mixes to address a variety of markets.

The Spartan-6 FPGA family, is fabricated on a low-power 45nm process technology. The Spartan-6 family is the PLD industry's only 45nm high-volume FPGA family, consisting of 11 devices in two product families.


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Other Product Families

Prior generation Virtex families include Virtex-5, Virtex-4, Virtex-II Pro, Virtex-II and the original Virtex family. Spartan family FPGAs include Spartan-3 FPGAs, the Spartan-3E family and the Spartan-3A family. Prior generation Spartan families include Spartan-IIE, Spartan-II, Spartan XL and the original Spartan family.

CPLDs operate on the lowest end of the programmable logic density spectrum. CPLDs are single-chip, nonvolatile solutions characterized by instant-on and universal interconnect. CPLDs combine the advantages of ultra-low power consumption with the benefits of high performance and low cost. Prior generations of CPLDs include the CoolRunner and XC9500 product families.

EasyPath FPGAs
    
EasyPath FPGAs offer customers a fast, simple method of cost-reducing FPGA designs. EasyPath FPGAs use the same production masks and fabrication process as standard FPGAs and are tested to a specific customer application to improve yield and lower costs. As a result, EasyPath FPGAs provide customers with significant cost reduction when compared to the standard FPGA devices without the conversion risk, engineering effort, or the additional time required to move to an ASIC. The latest generation of EasyPath FPGAs and EasyPath-7 FPGAs provide lower total product cost of ownership for cost-reducing high performance FPGAs.

Design Platforms and Services

Programmable Platforms

We offer three types of programmable platforms that support our customers' designs and reduce their development efforts:

The Base Platform is the delivery vehicle for all of our new silicon offerings used to develop and run customer-specific software applications and hardware designs. Released at launch, the Base Platform is comprised of: FPGA silicon; Vivado Design Suite design environment; integration support for optional third-party synthesis, simulation and signal integrity tools; reference designs; development boards and IP.

The Domain-Specific Platform targets one of the three primary Xilinx FPGA user profiles: the embedded processing developer; the DSP developer; or the logic/connectivity developer. It accomplishes this by augmenting the Base Platform with a targeted set of integrated technologies, including: higher-level design methodologies and tools; domain-specific IP including embedded, mixed signal, video, DSP and connectivity; domain-specific development hardware and reference designs; and operating systems and software.

The Market-Specific Platform enables software or hardware developers to quickly build and run their specific application or solution. Built for specific markets such as automotive, consumer, aerospace and defense, communications, audio, video and broadcast, industrial, or scientific and medical, the Market-Specific Platform integrates both the Base and Domain-Specific Platforms with higher targeted applications elements such as IP, reference designs and boards optimized for a particular market.

Design Tools

To accommodate the various design methodologies and design flows employed by the wide range of our customers' user profiles such as system designers, algorithm designers, software coders and logic designers, we provide the appropriate design environment tailored to each user profile for design creation, design implementation and design verification. In April 2012, Xilinx introduced the next-generation Vivado Design Suite designed to improve developer productivity resulting in faster design integration and implementation. The Vivado Design Suite hallmarks include an easy-to-use IP-centric design flow and significant improvement in run times. The standards-based Vivado tools include high-level synthesis to provide a more direct flow in retargeting DSPs and general purpose processor designs into our FPGAs, IP Integrator to rapidly stitch together cores at higher levels of abstraction, and a new analytical place-and-route engine which significantly improves run times. The Vivado Design Suite supports Xilinx 7 series FPGAs and Zynq-7000, our programmable SoCs, as well as the Ultrascale and Ultrascale+ product generations.

The previous generation tool suite, the ISE Design Suite, supports Xilinx 7 series FPGAs, programmable SoCs and all previous generation FPGAs, enabling customers to transition to the Vivado Design Suite when the timing is right for their design needs. Both the Vivado Design Suite and ISE Design Suite operate with a wide range of third-party Electronic Design Automation software point-tools offerings.


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In early 2015, Xilinx also introduced the SDx development environment, which has significantly expanded the Xilinx user base to include the broad community of systems and software engineers in both existing and new markets. This innovative development environment also enables end user and third party platform developers to rapidly define, integrate and verify system level solutions and provide their end customers with a customized programming environment. The SDx family includes the SDNet environment, which enables the easy creation of high-performance packet processing systems with high level user defined specifications and compilation to highly optimized FPGAs; the SDAccel environment for OpenCL, C and C++ software designers focusing on data center acceleration applications; and the SDSoC environment for All Programmable SoCs and MPSoCs with broad end market applicability.

Intellectual Property

Xilinx and various third parties offer hundreds of no charge and fee-bearing IP core licenses covering Ethernet, memory controllers, Interlaken and PCIe interfaces, as well as an abundance of domain-specific IP in the areas of embedded, DSP and connectivity, and market-specific IP cores. In addition, our products and technology leverage industry standards such as ARM AMBA AXI-4 interconnect technology, IP-XACT and IEEE P1735 encryption to facilitate plug-and-play FPGA design and take advantage of the large ecosystem of ARM IP developers.

Development Boards, Kits and Configuration Products

In addition to the broad selection of legacy development boards presently offered, we have introduced a new unified board strategy that enables the creation of a standardized and coordinated set of base boards available both from Xilinx and our ecosystem vendors, all utilizing the industry-standard extensions that enable customization for market specific applications. Adopting this standard for all of our base boards enables the creation of a scalable and extensible delivery mechanism for all Xilinx programmable platforms.

We also offer comprehensive development kits including hardware, design tools, IP and reference designs that are designed to streamline and accelerate the development of domain-specific and market-specific applications.

Finally, Xilinx offers a range of configuration products including one-time programmable and in-system programmable storage devices to configure Xilinx FPGAs. These programmable read-only memory (PROM) products support all of our FPGA devices.

Third-Party Alliances

Xilinx and certain third parties have developed and continue to offer a robust ecosystem of IP, boards, tools, services and support through the Xilinx alliance program. Xilinx also works with these third parties to promote our programmable platforms through third-party tools, IP, software, boards and design services.

In May of 2016, Xilinx led the formation of the very broad Cache Coherent Interconnect Acceleration (CCIX) consortium with the singular goal of bringing a high performance, open acceleration framework to the data center market. As of March 2018, this consortium had approximately 40 members, ranging from silicon providers to a rich ecosystem of partners including design, foundry, verification, software and system vendors.

Engineering Services

Xilinx engineering services provide customers with engineering resources to augment their design teams and to provide expert design-specific advice. Xilinx tailors its engineering services to the needs of its customers, ranging from hands-on training to full design creation and implementation.

Research and Development

Our research and development (R&D) activities are primarily directed towards the design of new ICs and the development of new software design automation tools for hardware and embedded software, the design of logic IP, the adoption of advanced semiconductor manufacturing processes for ongoing cost reductions, performance and signal integrity improvements and lowering PLD power consumption.

As a result of our R&D efforts, we have introduced a number of new products during the past several years including the Virtex, Kintex, Zynq UltraScale+, Zynq UltraScale+ RFSoCs, Virtex & Kintex UltraScale and Artix, Kintex, Virtex & Zynq 7 Series program families. We have enhanced our IP core offerings and introduced our next generation software design suite (Vivado), which is optimized for SDAccel and SDSoC application development. Through process technology collaboration with our foundry

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suppliers along with strategic investment in EDA tools and improved design techniques, we have been the first PLD Company to ship 45nm high-volume, 28nm, 20nm and 16nm FPGA devices. Additionally, our investment in R&D has allowed us to ship the industry's first 28nm and 16nm devices with embedded ARM technology, the industry's first All Programmable SoC with integrated RF Data Converters, as well as the industry's first 3D IC devices on the 28nm and 20nm process nodes.

We believe technical leadership and innovation are essential to our future success, and we continue to invest in our technology. In fiscal 2018, 2017 and 2016, our R&D expenses were $639.8 million, $601.4 million and $533.9 million, respectively.

Sales and Distribution

We sell our products to OEMs, EMS and to electronic components distributors who resell these products to OEMs and EMS.

We use a dedicated global sales and marketing organization, and to a lesser extent, independent sales representatives, to generate sales. In general, we focus our direct demand creation efforts on a limited number of key accounts. Distributors and independent sales representatives create demand within the balance of our customer base in defined territories. Distributors also provide inventory, value-added services and logistics for a wide range of our OEM customers.

Whether Xilinx, the distributor, or the independent sales representative identifies the sales opportunity, a local distributor will process and fulfill the majority of all customer orders. In such situations, distributors are the sellers of the products and as such they bear most legal and financial risks generally related to the sale of commercial goods, including such risks as credit loss, inventory shrinkage, theft and foreign currency fluctuations, but excluding certain indemnity and warranty liabilities.

In accordance with our distribution agreements and industry practice, we have granted our authorized distributors the contractual right to return certain amounts of unsold product on a periodic basis and also receive price adjustments for unsold product in the case of a change in list prices subsequent to the initial sale. Revenue recognition on shipments to distributors worldwide is deferred until the products are sold to the distributors' end customers. Our revenue recognition policy will change starting fiscal 2019, see "Note 2. Summary of Significant Accounting Policies and Concentrations of Risk" to our consolidated financial statements, included in Item 8.

Avnet, Inc. (Avnet) distributes the substantial majority of our products worldwide. As of March 31, 2018 and April 1, 2017, Avnet accounted for 60% and 59%, respectively, of our total net accounts receivable. Resale of product through Avnet accounted for 43%, 44% and 50% of our worldwide net revenues in fiscal 2018, 2017 and 2016, respectively. We also use other regional distributors throughout the world. We believe distributors provide a cost-effective means of reaching a broad range of customers while providing efficient logistics services. Since PLDs are standard products, they do not carry many of the inventory risks posed by ASICs. From time to time, we may add or terminate distributors in specific geographies, or move customers to a direct support or fulfillment model as we deem appropriate given our strategies, the level of distributor business activity and distributor performance and financial condition. See "Note 2. Summary of Significant Accounting Policies and Concentrations of Risk" to our consolidated financial statements, included in Item 8. "Financial Statements and Supplementary Data," for information about concentrations of credit risk and "Note 15. Segment Information" for information about our revenues from external customers and domestic and international operations.

No end customer accounted for more than 10% of our net revenues in fiscal 2018, 2017 or 2016.

Backlog

As of March 31, 2018, our backlog from OEM customers and backlog from end customers reported by our distributors scheduled for delivery within the next three months was $429.0 million, compared to $356.0 million as of April 1, 2017. Orders from end customers to our distributors are subject to changes in delivery schedules or to cancellation without significant penalty. As a result, backlog from both OEM customers and end customers reported by our distributors as of any particular period may not be a reliable indicator of revenue for any future period.

Wafer Fabrication

As a fabless semiconductor company, we do not manufacture wafers used for our IC products or PROMs. Rather, we purchase our wafers from independent foundries including TSMC, United Microelectronics Corporation (UMC) and Samsung Electronics Co., Ltd. (Samsung). TSMC manufactures the wafers for our Advanced Products.

Precise terms with respect to the volume and timing of wafer production and the pricing of wafers produced by the semiconductor foundries are determined by periodic negotiations with each wafer foundry.

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Our strategy is to focus our resources on market development and creating new ICs and software design tools rather than on wafer fabrication. We continuously evaluate opportunities to enhance foundry relationships and/or obtain additional capacity from our main suppliers as well as other suppliers of wafers manufactured with leading-edge process technologies, and we adjust loadings at particular foundries to meet our business needs.
  
Sort, Assembly and Test

Wafers are sorted by the foundry or independent sort subcontractors. Sorted die are assembled by subcontractors. During the assembly process, the wafers are separated into individual die, which are then assembled into various package types. Following assembly, the packaged units are generally tested by independent test subcontractors or by Xilinx personnel. We purchase most of our assembly services from Siliconware Precision Industries Ltd. and most of our test services from King Yuan Electronics Company in Taiwan.

Quality Certification

Xilinx has achieved and currently maintains quality management system certification to TL9000/ISO9001 for our facilities in San Jose, California; Longmont, Colorado; Singapore; and Hyderabad, India. In addition, Xilinx achieved and currently maintains ISO 14001 and OHSAS 18001 environmental health and safety management system certifications in the San Jose and Singapore locations.

Intellectual Property and Licenses

While our various proprietary intellectual property rights (including patents, copyrights, trade secrets, and trademarks) are important to our success, we believe our business as a whole is not materially dependent on any particular patent or license, or any particular group of patents or licenses. As of March 31, 2018, we held over 4,200 issued patents, which vary in duration, and over 800 pending patent applications relating to our proprietary technology in various jurisdictions around the world. We maintain an active program of filing for additional patents in the areas of, but not limited to, circuits, software, IC architecture, IP cores, system design, testing methodologies and other technologies relating to our products and business. We licensed portions of our patent portfolio to certain external parties and obtained patent licenses from certain third-parties as well.

We have acquired various licenses from third parties to certain technologies that are implemented in IP cores or embedded in our devices, such as processors. These licenses support our continuing ability to make and sell our products. We have also acquired various licenses to certain third-party proprietary software, open-source software, and related technologies, such as compilers, for our design tools.  Continued use of such software and technology is important to the operation of the design tools upon which customers depend.

We maintain the Xilinx trade name and trademarks, including the following trademarks that are registered in the U.S. and other countries: Xilinx, the Xilinx logo, Artix, CoolRunner, ISE, Kintex, Spartan, Virtex, Vivado, and Zynq. Maintaining these trademarks, and the goodwill associated with them, is important to our business. We have also obtained the rights to use certain trademarks owned by consortiums and other trademark owners that are related to our products and business.

We intend to continue to protect our intellectual property vigorously. We believe that failure to enforce our intellectual property rights or failure to protect our trade secrets effectively could have an adverse effect on our financial condition and results of operations. We incurred, and in the future we may continue to incur, litigation expenses to defend against claims of infringement and to enforce our intellectual property rights against third parties. However, any such litigation may or may not be successful.

Corporate Responsibility

Xilinx places a high level of importance on corporate responsibility. Through senior-level sponsorship, regular environmental, health and safety assessments and company-wide performance targets, we strive to achieve a culture that emphasizes contribution to local and global communities through a number of key initiatives:

Company

We strive to meet or exceed industry and regulatory standards for ethical business practices, product responsibility, and supplier management.  All of Xilinx's directors, officers and employees are required to comply not only with the letter of the laws, rules and regulations that govern the conduct of our business, but also with the spirit of those laws.


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Environment

We continually monitor regulatory requirement and resource trends in order to identify, manage and control activities that have an environmental impact. We focus on the conservations of energy and natural resource, reducing the solid and chemical waste of our operations, avoiding and preventing pollution and minimizing our overall environmental impact with regards to the communities around us and consistent with global climate change efforts.

Community

We are committed to growing strategic relationships with a wide range of local organizations and programs that are designed to develop and strengthen communities located around the world. Xilinx develops local community relationships at key sites through funding and involvement that encourages active participation, teamwork, and volunteerism. Xilinx supports opportunities initiated by its employees and that involve participation and empowerment of its employees. We are committed to charitable giving programs that work towards systemic change and measurable results.

Workplace

We provide a safe and healthy work environment for all employees. Employee diversity and inclusion are embraced and opportunities for training, growth, and advancement are strongly encouraged.  The Xilinx Code of Social Responsibility outlines standards to ensure that working conditions at Xilinx are safe and that workers are treated with respect, fairness and dignity.

Employees

As of March 31, 2018, we had 4,014 employees compared to 3,831 as of the end of the prior fiscal year. None of our employees are represented by a labor union. We have not experienced any work stoppages and believe we maintain good employee relations.
Executive Officers of the Registrant
Certain information regarding the executive officers and persons chosen to become executive officers of Xilinx as of May 14, 2018 is set forth below:
Name
 
Age
 
Position
Victor Peng
 
58
 
President and Chief Executive Officer (CEO)
Lorenzo A. Flores
 
53
 
Executive Vice President and Chief Financial Officer (CFO)
Catia Hagopian
 
46
 
Senior Vice President, General Counsel and Secretary
William Christopher Madden
 
59
 
Senior Vice President, Hardware and Systems Product Development
Emre Önder
 
51
 
Senior Vice President, Product and Vertical Marketing
Salil Raje
 
48
 
Senior Vice President, Software and IP Products Group
Vincent L. Tong
 
56
 
Executive Vice President, Global Operations and Quality
Mark David Wadlington
 
56
 
Senior Vice President, Global Sales

There are no family relationships among the executive officers of the Company or the Board of Directors.

Victor Peng joined the Company in April 2008 and currently serves as President and Chief Executive Officer, a position he has held since February 2018. From April 2017 to February 2018, Mr. Peng served as Chief Operating Officer. From July 2014 to April 2017, he served as Executive Vice President and General Manager of Products. From May 2013 through July 2014, Mr. Peng served as Senior Vice President and General Manager of the Programmable Platforms Group. From May 2012 through April 2013, he served as Senior Vice President of the Programmable Platforms Group. From November 2008 through April 2012, he served as Senior Vice President of the Programmable Platforms Development Group. Prior to joining the Company, Mr. Peng served as Corporate Vice President, Graphics Products Group at Advanced Micro Devices (AMD), a provider of processing

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solutions, from November 2005 to April 2008. Prior to joining AMD, Mr. Peng served in a variety of executive engineering positions at companies in the semiconductor and processor industries. 
 
Lorenzo A. Flores joined the Company in September 2008 and currently serves as Executive Vice President and Chief Financial Officer, a position he has held since February 2018. From May 2016 to January 2018, Mr. Flores served as Senior Vice President and Chief Financial Officer. From July 2012 to May 2016, Mr. Flores served as Corporate Vice President of Finance and Corporate Controller.  From September 2008 to June 2012 he served as Vice President of Finance and Corporate Controller.  Prior to joining the Company, Mr. Flores was Assistant Vice President of Financial Planning and Analysis at Cognizant Technology Solutions, served as Chief Financial Officer of a venture funded startup, and spent ten years at Intel Corporation, a semiconductor chip maker, serving in a variety of positions, including Controller, Intel Architecture CPUs and Controller, Telecommunications and Embedded Group.   

Catia Hagopian joined the Company in February 2007 and currently serves as Senior Vice President, General Counsel and Secretary, a position she has held since March 2018. Ms. Hagopian is responsible for the Company’s legal operations globally covering matters such as commercial transactions, corporate activities and policies, corporate governance, employment, export compliance, intellectual property and litigation. From April 2012 to March 2018, Ms. Hagopian served as the Company’s Vice President, Legal Affairs, Global Compensation and Benefits.  From February 2007 to April 2012, Ms. Hagopian held various senior positions in the Company’s Legal Department.  Prior to joining the Company, Ms. Hagopian served as a law clerk for the US District Court, Eastern District of California and worked at several law firms, including DLA Piper LLP (US).

William Christopher Madden joined the Company in May 2008 and currently serves as Senior Vice President, Hardware and Systems Product Development, a position he has held since July 2017.  From October 2010 to June 2017, Mr. Madden served as Corporate Vice President, FPGA Development and Silicon Technology.  From May 2008 to September 2010, Mr. Madden served as Vice President of Silicon Technology.  Prior to joining the Company, Mr. Madden served as a Senior Fellow at AMD where he drove AMD’s next generation chip integration methodology.  Mr. Madden also currently serves as an Adjunct Professor at University College Dublin, a Fellow of the Institute of Engineers Ireland and a Board Member of Science Foundation Ireland. 

Emre Önder joined the Company in August 2017 and currently serves as Senior Vice President, Product and Vertical Marketing. From July 2015 to June 2017, Mr. Önder served as the Vice President/General Manager and Vice President, Global Sales, Sensing and IoT at Honeywell International Inc., a diversified technology and manufacturing company that produces a variety of commercial and consumer products]. From October 2009 to December 2014, he served as Vice President, Marketing and Core Markets at Analog Devices, Inc. (ADI), a global analog, mixed-signal and digital signal processing technology company. Prior to joining ADI, Mr. Önder worked at EMC Corporation and the Boston Consulting Group.

Salil Raje joined the Company in June 2004 and currently serves as Senior Vice President, Software and IP Products Group, a position he has held since April 2017. From June 2012 to April 2017, Mr. Raje served as Corporate Vice President, Software and IP Products Group. He has also served as Vice President, FPGA Software from January 2009 to June 2012, and as Director, Software Development from June 2004 to January 2009. Prior to joining the Company, Mr. Raje served as Chief Technology Officer and Chief Executive Officer of Hier Design, Inc., a company he co-founded in 2001 and which was acquired by the Company in June 2004.

Vincent L. Tong joined the Company in May 1990 and currently serves as Executive Vice President, Global Operations & Quality, a position he has held since May 2016. From January 2015 to May 2016, Mr. Tong served as Senior Vice President, Global Operations and Quality. He also has served as Executive Leader, Asia Pacific since October 2011.  Mr. Tong previously served as Senior Vice President, Worldwide Quality and New Product Introductions from June 2008 to January 2015.  He has also served as Vice President, Worldwide Quality and Reliability from August 2006 to June 2008 and prior to that as Vice President of Product Technology from May 2001 to July 2006.  Prior to joining the Company, Mr. Tong served in a variety of engineering and management positions at Monolithic Memories, a producer of logic devices, and AMD. He holds seven U.S. patents.

Mark David Wadlington joined the Company in March 2018 and currently serves as Senior Vice President, Global Sales. Prior to joining the Company, Mr. Wadlington was Senior Vice President, Worldwide Sales at Synaptics Incorporated from April 2017 to March 2018.  Prior to joining Synaptics, from February 2013 to March 2017, Mr. Wadlington held executive positions at Lattice Semiconductor, including serving as Corporate Vice President and General Manager, Mobile and Consumer Division at Lattice Semiconductor and Corporate Vice President of Worldwide Sales.  Prior to Lattice, Mr. Wadlington was Vice President of Worldwide Sales at Applied Micro Circuits Corporation (AMCC) from March 2011 to November 2012.  Prior to AMCC, Mr. Wadlington served as the Vice President of America’s Sales at the Company, Vice President of Worldwide MCP (media communications processor) Sales at NVIDIA, and held various senior-level positions at LSI Logic during his 21-year tenure there, including serving as LSI Logic’s Vice President of Worldwide Semiconductor Sales.

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Additional Information

We make available, via a link through our investor relations website located at www.investor.xilinx.com, access to our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the U.S. Securities Exchange Act of 1934, as amended (Exchange Act) as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission (SEC). All such filings on our investor relations website are available free of charge. Printed copies of these documents are also available to stockholders without charge, upon written request directed to Xilinx, Inc., Attn: Investor Relations, 2100 Logic Drive, San Jose, CA 95124. Further, a copy of this Annual Report on Form 10-K is located at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding our filings at http://www.sec.gov. The content on any website referred to in this filing is not incorporated by reference into this filing unless expressly noted otherwise.

Additional information required by this Item 1 is incorporated by reference to the section captioned "Net Revenues - Net Revenues by Geography" in Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" and to "Note 15. Segment Information" to our consolidated financial statements, included in Item 8. "Financial Statements and Supplementary Data."

This annual report includes trademarks and service marks of Xilinx and other companies that are unregistered and registered in the U.S. and other countries.

ITEM 1A.
RISK FACTORS

The following risk factors and other information included in this Annual Report on Form 10-K should be carefully considered. The risks and uncertainties described below are not the only risks to the Company. Our business operations or financial condition could be impaired by risks and uncertainties not presently known to the Company, or that the Company's management does not currently consider material. If any of the risks described below were to occur, our business, financial condition, operating results and cash flows could be materially adversely affected.

Our success depends on our ability to develop and introduce new products and our failure to do so would have a material adverse impact on our financial condition and results of operations.

Our success depends in large part on our ability to develop and introduce new products that address customer requirements and compete effectively on the basis of price, density, functionality, power consumption and performance. Consolidation in our industry may increasingly result in our competitors having greater resources, or other synergies, that provide them with a competitive advantage in those regards. The success of new product introductions is dependent upon several factors, including:

timely completion of new product designs;
ability to generate new design opportunities and design wins;
availability of specialized field application engineering resources supporting demand creation and customer adoption of new products;
ability to utilize advanced manufacturing process technologies on circuit geometries of 28nm and smaller;
achieving acceptable yields;
ability to obtain adequate production capacity from our wafer foundries and assembly and test subcontractors;
ability to obtain advanced packaging;
availability of supporting software design tools;
utilization of predefined IP logic;
customer acceptance of advanced features in our new products;
ability of our customers to complete their product designs and bring them to market; and
market acceptance of our customers' products.

Our product development efforts may not be successful, our new products may not achieve industry acceptance, or we may not achieve the necessary volume of production that would lead to further per unit cost reductions. Revenues relating to our mature products are expected to decline in the future, which is normal for our product life cycles. As a result, we may be increasingly dependent on revenues derived from design wins for our newer products as well as anticipated cost reductions in the manufacture of our current products. We rely primarily on obtaining yield improvements and corresponding cost reductions in the manufacture

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of existing products, and on introducing new products that incorporate advanced features and other price/performance factors that enable us to increase revenues while maintaining consistent margins. To the extent that such cost reductions and new product introductions do not occur in a timely manner, or to the extent that our products do not achieve market acceptance at prices with higher margins, our financial condition and results of operations could be materially adversely affected.
 
We rely on independent foundries for the manufacture of all of our products and a manufacturing problem or insufficient foundry capacity could adversely affect our operations.

Most of our wafers are manufactured in Taiwan by TSMC and UMC. We also have wafers manufactured in South Korea by Samsung Electronics Co., Ltd. Terms with respect to the volume and timing of wafer production and the pricing of wafers produced by the semiconductor foundries are determined through periodic negotiations with these wafer foundries, which usually result in short-term agreements that do not provide for long-term supply or allocation commitments. We are dependent on these foundries to supply the substantial majority of our wafers. We rely on TSMC, UMC and our other foundries to produce wafers with competitive performance attributes. Therefore, the foundries, particularly TSMC which manufactures our newest products, must be able to transition to advanced manufacturing process technologies and increased wafer sizes, produce wafers at acceptable yields and deliver them in a timely manner. Furthermore, we cannot guarantee that the foundries that supply our wafers will offer us competitive pricing terms or other commercial terms important to our business.

We cannot guarantee that our foundries will not experience manufacturing problems, including delays in the realization of advanced manufacturing process technologies or difficulties due to limitations of new and existing process technologies. For example, we may experience supply shortages due to the difficulties foundries may encounter if they must rapidly increase their production capacities from low utilization levels to high utilization levels because of an unexpected increase in demand. Furthermore, we cannot guarantee that the foundries will be able to manufacture sufficient quantities of our products or that they will continue to manufacture a given product for the full life of the product. We could also experience supply shortages due to very strong demand for our products, or a surge in demand for semiconductors in general, which may lead to tightening of foundry capacity across the industry. In addition, weak economic conditions may adversely impact the financial health and viability of the foundries and result in their insolvency or their inability to meet their commitments to us. The insolvency of a foundry or any significant manufacturing problem or insufficient foundry capacity would disrupt our operations and negatively impact our financial condition and results of operations.

Earthquakes or other natural disasters could disrupt our operations and have a material adverse effect on our financial condition and results of operations.

Our worldwide operations could be disrupted by earthquakes or other natural disasters such as typhoons, tsunamis, volcano eruptions, fires or floods, as well as disruptions in access to adequate supplies of electricity, natural gas or water. The independent foundries, upon which we rely to manufacture our products, as well as our California and Singapore facilities, are located in regions that are subject to earthquakes and other natural disasters. TSMC's and UMC's foundries in Taiwan and our assembly and test partners in other regions as well as many of our operations in California are located in areas that have been seismically active in the past and some of these areas have also been affected by other natural disasters such as typhoons. Disruption of operations at these foundries and our facilities could cause delays in manufacturing and shipments of our products, and could have a material adverse effect on our results of operations. Any catastrophic event in these locations would disrupt our operations, and our insurance may not cover losses resulting from such disruptions of our operations, thereby materially adversely affecting our financial condition and results of operations. For example, as a result of the March 2011 earthquake in Japan, production at the Seiko factory at Sakata was halted temporarily, impacting production of some of our older devices. In addition, suppliers of wafers and substrates were forced to halt production temporarily. Furthermore, natural disasters can also indirectly impact us. For example, our customers' supply of other complimentary products may be disrupted by a natural disaster and may cause them to delay orders of our products. More vertically-integrated competitors may be less exposed to some or all of these and other risks.

The semiconductor industry is characterized by cyclical market patterns and a significant industry downturn could adversely affect our operating results.

The semiconductor industry is highly cyclical and our financial performance has been affected by downturns in the industry. Down cycles are generally characterized by price erosion and weaker demand for our products. Weaker demand for our products resulting from economic conditions in the end markets we serve and reduced capital spending by our customers can result, and in the past has resulted, in excess and obsolete inventories and corresponding inventory write-downs. We attempt to identify changes in market conditions as soon as possible; however, the dynamics of the market in which we operate make prediction of and timely reaction to such events difficult. Due to these and other factors, our past results are not reliable predictors of our future results.


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The nature of our business makes our revenues difficult to predict which could have an adverse impact on our business.

In addition to the challenging market conditions we may face, we have limited visibility into the demand for our products, particularly new products, because demand for our products depends upon our products being designed into our end customers' products and those products achieving market acceptance. Due to the complexity of our customers' designs, the design to volume production process for our customers requires a substantial amount of time, frequently longer than a year. In addition, other factors may affect our end customers' demand for our products, including, but not limited to, end customer program delays and the ability of end customers to secure other complementary products. We also are dependent upon "turns," orders received and turned for shipment in the same quarter. These factors make it difficult for us to forecast future sales and project quarterly revenues. The difficulty in forecasting future sales impairs our ability to project our inventory requirements, which could result, and in the past has resulted, in inventory write-downs or failure to meet customer product demands in a timely manner. In addition, difficulty in forecasting revenues compromises our ability to provide forward-looking revenue and earnings guidance.

If we are not able to compete successfully in our industry, our financial results and future prospects will be adversely affected.

Our PLDs compete in the IC industry, an industry that is intensely competitive, continues to consolidate, and is characterized by rapid technological change, increasing levels of integration, product obsolescence and continuous price erosion. We expect increased competition from our PLD competitors, including Intel, Lattice and Microsemi, and from new market entrants. In addition, we continue to face competition in the ASIC and ASSP markets, including competitors such as Broadcom, Marvell and Texas Instruments. We believe that important competitive factors in the logic IC industry include:

product pricing;
time-to-market;
product performance, reliability, quality, power consumption and density;
field upgradeability;
adaptability of products to specific applications;
ease of use and functionality of software design tools;
availability and functionality of predefined IP logic;
inventory and supply chain management;
access to leading-edge process technology and assembly capacity;
ability to provide timely customer service and support; and
access to advanced packaging technology.

Our strategy for expansion in the logic market includes continued introduction of new product architectures that address high-volume, low-cost and low-power applications as well as high-performance, high-density applications. However, we may not be successful in executing this strategy. In addition, we anticipate continued pressure from our customers to reduce prices, which may outpace our ability to lower the cost for established products.

Other competitors include manufacturers of:

high-density programmable logic products characterized by FPGA-type architectures;
high-volume and low-cost FPGAs as programmable replacements for ASICs and ASSPs;
ASICs and ASSPs with incremental amounts of embedded programmable logic;
high-speed, low-density complex programmable logic devices;
high-performance digital signal processing devices;
products with embedded processors;
products with embedded multi-gigabit transceivers;
discrete general purpose GPUs targeting non-graphics applications; and
other new or emerging programmable logic products.

Several companies have introduced products that compete with ours or have announced their intention to sell PLD products. To the extent that our efforts to compete are not successful, our financial condition and results of operations could be materially adversely affected.

The benefits of programmable logic have attracted a number of competitors to this segment. We recognize that different applications require different programmable technologies, and we are developing architectures, processes and products to meet these varying customer needs. Recognizing the increasing importance of standard software solutions, we have developed common software

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design tools that support the full range of our IC products. We believe that automation and ease of design are significant competitive factors in this segment.

We could also face competition from our licensees. In the past we have granted limited rights to other companies with respect to certain aspects of our older technology, and we may do so in the future. Granting such rights may enable these companies to manufacture and market products that may be competitive with some of our older products.

Increased costs of wafers and materials, or shortages in wafers and materials, could adversely impact our gross margins and lead to reduced revenues.

If greater demand for wafers is not offset by an increase in foundry capacity, market demand for wafers or production and assembly materials increases, or if a supplier of our wafers or other materials ceases or suspends operations, our supply of wafers and other materials could become limited. Such shortages raise the likelihood of potential wafer price increases, wafer shortages or shortages in materials at production and test facilities, resulting in potential inability to address customer product demands in a timely manner. For example, in 2011, when certain suppliers located in Japan were forced to temporarily halt production as the result of a natural disaster, this resulted in a tightening of supply for those materials. Such shortages of wafers and materials as well as increases in wafer or materials prices could adversely affect our gross margins and would adversely affect our ability to meet customer demands and lead to reduced revenue.

We depend on distributors, primarily Avnet, to generate a significant portion of our sales and complete order fulfillment.

Resale of product through Avnet accounted for 43% of our worldwide net revenues in fiscal 2018, and, as of March 31, 2018, Avnet accounted for 60% of our total net accounts receivable. Any adverse change to our relationship with Avnet or our other distributors could have a material impact on our business. Furthermore, if a key distributor materially defaulted on a contract or otherwise failed to perform, our business and financial results would suffer. In addition, we are subject to concentrations of credit risk in our trade accounts receivable, which includes accounts of our distributors. A significant reduction of effort by a distributor to sell our products or a material change in our relationship with one or more distributors may reduce our access to certain end customers and adversely affect our ability to sell our products.

In addition, the financial health of our distributors and our continuing relationships with them are important to our success. Unpredictable economic conditions may adversely impact the financial health of some of these distributors, particularly our smaller distributors. This could increase our credit risk exposure relating to the insolvency of certain distributors, the inability of distributors to obtain credit to finance the purchase of our products, or delayed payment for such purchases. Our business could be harmed if the financial health of these distributors impaired their performance and we were unable to secure alternate distributors.

We are dependent on independent subcontractors for most of our assembly and test services, and unavailability or disruption of these services could negatively impact our financial condition and results of operations.

We are dependent on subcontractors to provide semiconductor assembly, substrate, test and shipment services. Any (i) prolonged inability to obtain wafers with competitive performance and cost attributes, adequate yields or timely delivery, (ii) disruption in assembly, test or shipment services, (iii) delays in stabilizing manufacturing processes and ramping up volume for new products, (iv) transitions to new service providers, or (v) other circumstance that would require us to seek alternative sources of supply, could delay shipments and have a material adverse effect on our ability to meet customer demands. In addition, unpredictable economic conditions may adversely impact the financial health and viability of these subcontractors and result in their insolvency or their inability to meet their commitments to us. These factors would result in reduced net revenues and could negatively impact our financial condition and results of operations.

A number of factors, including our inventory strategy, can impact our gross margins.

A number of factors can cause our gross margins to fluctuate, including yield, wafer pricing, product mix, market acceptance of our new products, competitive pricing dynamics, licensing costs, geographic and/or market segment pricing strategies. In addition, forecasting our gross margins is difficult because a significant portion of our business is based on turns within the same quarter.

While our overall inventory levels fluctuate over time, the inventory of newer product lines may be higher than other products due to a planned increase in safety stock in anticipation of future revenue growth. In the event demand does not materialize, we may be subject to incremental obsolescence costs. In addition, future product cost reductions could have impact on our inventory valuation as well as our operating results.

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Reductions in the average selling prices of our products could have a negative impact on our gross margins.

The average selling prices of our products generally decline as the products mature. We seek to offset the decrease in selling prices through yield improvement, manufacturing cost reductions and increased unit sales. We also continue to develop higher value products or product features that increase the average selling prices of our products, or slow the decline of such prices. However, there is no guarantee that our ongoing efforts will be successful or that they will keep pace with the decline in selling prices of our products, which could ultimately lead to a decline in our revenues and gross margins.

General negative economic conditions and any related deterioration in the global business environment could have a material adverse effect on our business, operating results and financial condition.

If weak economic conditions happen, there may be a number of negative effects on our business, including customers or potential customers reducing or delaying orders, the insolvency of key suppliers, potentially causing production delays, the inability of customers to obtain credit, and the insolvency of one or more customers. Any of these effects could impact our ability to effectively manage inventory levels and collect receivables and ultimately decrease our net revenues and profitability.

We are subject to the risks associated with conducting business operations outside of the U.S. which could adversely affect our business.

In addition to international sales and support operations and development activities, we purchase our wafers from foreign foundries, have our commercial products assembled, packaged and tested by subcontractors located outside the U.S. and utilize third party warehouse operators to store and manage inventory levels for certain of our products. All of these activities are subject to the uncertainties associated with international business operations, including global laws and regulations, trade barriers, economic sanctions, tax regulations, import and export regulations, duties and tariffs and other trade restrictions, changes in trade policies, anti-corruption laws, foreign governmental regulations, potential vulnerability of and reduced protection for IP, longer receivable collection periods and disruptions or delays in production or shipments, any of which could have a material adverse effect on our business, financial condition and/or operating results. For example, on March 8, 2016, the U.S. Department of Commerce added ZTE Corporation (ZTE) to its "Entity List" and placed certain export restrictions on ZTE and its suppliers. Although the U.S. Department of Commerce and ZTE reached a settlement effective on March 23, 2017, which removed ZTE from the Entity List, in April 2018, the U.S. Department of Commerce issued a denial order against ZTE. Unless interim relief is provided or ZTE reaches another settlement with the U.S. Department of Commerce, this restriction may have a material adverse effect on our business, financial condition and/or operating results. Additional factors that could adversely affect us due to our international operations include rising oil prices and increased costs, or limited supply of other natural resources. Moreover, our financial condition and results of operations could be adversely affected in the event of political conflicts, economic crises or changes in international relations affecting countries where our main wafer providers, warehouses, end customers and contract manufacturers who provide assembly and test services worldwide, are located. For example, the United Kingdom's pending exit from the European Union, commonly referred to as "Brexit", has led to significant instability and uncertainty in such regions, which could have a material adverse effect on our business. In addition, in the first half of 2018, the U.S and China began threatening to impose tariffs on each other's products, leading to fears of a trade war, which, if were to materialize, could result in general economic downturn or otherwise have a material adverse effect on our business.

Because we have international business and operations, we are vulnerable to the economic conditions of the countries in which we operate and currency fluctuations could have a material adverse effect on our business and negatively impact our financial condition and results of operations.

In addition to our U.S. operations, we also have significant international operations, including foreign sales offices to support our international customers and distributors, our regional headquarters in Ireland and Singapore and an R&D site in India. Sales and operations outside of the U.S. subject us to the risks associated with conducting business in foreign economic and regulatory environments. Our financial condition and results of operations could be adversely affected by unfavorable economic conditions in countries in which we do significant business or by changes in foreign currency exchange rates affecting those countries. We derive more than half of our revenues from international sales, primarily in the Asia Pacific region, Europe and Japan where economic weaknesses have adversely affected our revenues in the past. Sales to all direct OEMs and distributors are denominated in U.S. dollars. While the recent movements of the Euro and Yen exchange rates against the U.S. dollar had no material impact on our business, increased volatility could impact our European and Japanese customers. Currency instability and volatility and disruptions in the credit and capital markets may increase credit risks for some of our customers and may impair our customers' ability to repay existing obligations. For example, the United Kingdom's 2016 referendum vote to approve, "Brexit", has created economic uncertainty and currency volatility in the European Union. Increased currency volatility could also positively or negatively impact our foreign-currency-denominated costs, assets and liabilities. In addition, any devaluation of the U.S. dollar

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relative to other foreign currencies may increase the operating expenses of our foreign subsidiaries adversely affecting our results of operations. Furthermore, because we are increasingly dependent on the global economy, instability in worldwide economic environments occasioned, for example, directly or indirectly by political instability (such as due to Brexit), terrorist activity, U.S. or other military actions, changes to U.S. domestic and foreign policy and international sanctions or other diplomatic actions (potentially including sanctions adopted or under consideration by the U.S. or European Union with respect to Russia or Russian individuals or businesses), could adversely impact economic activity and lead to a contraction of capital spending by our customers generally or in specific regions. Any or all of these factors could adversely affect our financial condition and results of operations in the future.

We are exposed to fluctuations in interest rates and changes in credit rating and in the market values of our portfolio investments which could have a material adverse impact on our financial condition and results of operations.

Our cash, short-term and long-term investments represent significant assets that may be subject to fluctuating or even negative returns depending upon interest rate movements, changes in credit rating and financial market conditions. Global credit market disruptions and economic slowdown and uncertainty have in the past negatively impacted the values of various types of investment and non-investment grade securities. The global credit and capital markets may again experience significant volatility and disruption due to instability in the global financial system, uncertainty related to global economic conditions and concerns regarding sovereign financial stability.

Therefore, there is a risk that we may incur other-than-temporary impairment charges for certain types of investments should credit market conditions deteriorate or the underlying assets fail to perform as anticipated. Our future investment income may fall short of expectations due to changes in interest rates or if the decline in fair values of our debt securities was judged to be other than temporary. Furthermore, we may suffer losses in principal if we are forced to sell securities that have declined in market value due to changes in interest rates or financial market conditions.

Our failure to protect and defend our IP could impair our ability to compete effectively.

We rely upon patent, copyright, trade secret, mask work and trademark laws to protect our IP. We cannot provide assurance that such IP rights can be successfully asserted in the future or will not be invalidated, violated, circumvented or challenged. From time to time, third parties, including our competitors, have asserted against us patent, copyright or other IP rights to technologies that are important to us. Third parties may attempt to misappropriate our IP through electronic or other means or assert infringement claims against us or parties we have agreed to indemnify. Such assertions by third parties may result in costly litigation, indemnity claims or other legal actions, and we may not prevail in such matters or be able to license any valid and infringed patents from third parties on commercially reasonable terms. This could result in the loss of our ability to import and sell our products or require us to pay costly royalties to third parties in connection with sales of our products. Any infringement claim, indemnification claim, or impairment or loss of use of our IP could materially adversely affect our financial condition and results of operations.

Our ability to design and introduce new products in a timely manner is dependent upon third-party IP.

In the design and development of new products and product enhancements, we rely on third-party intellectual property such as software development tools and hardware testing tools. Furthermore, certain product features may rely on intellectual property acquired from third parties, including hardware and software tools and products. The design requirements necessary to meet future consumer demands for more features and greater functionality from semiconductor products may exceed the capabilities of the third-party intellectual property or development tools that are available to us. In addition, hardware and software tools and products procured from third parties may contain design or manufacturing defects, including flaws that could unexpectedly interfere with the operation of our products. If the third-party intellectual property that we use becomes unavailable or fails to produce designs that meet consumer demands, our business could be adversely affected.

Any failure of our information technology systems to function properly could result in business disruption.

We rely in part on various information technology (IT) systems to manage our operations, including, but not limited to, financial reporting, and we regularly evaluate these systems and make changes to improve them as necessary. Consequently, we periodically implement new, or upgrade or enhance existing, operational and IT systems, procedures and controls. Any delay in the implementation of, or disruption in the transition to, new or enhanced systems, procedures or controls, could harm our ability to record and report financial, management, or operational information on a timely and accurate basis. In addition, hardware and software tools and products procured from third parties included in our IT systems could contain design or manufacturing defects, including flaws that could unexpectedly interfere with the operation of our IT systems. These systems are also subject to power and telecommunication outages or other general system failures. Failure of our IT systems or difficulties in managing them could result in business disruption.

20



Cyber-attacks and data breaches could have an adverse effect on our business and reputation and negatively impact our financial condition and results of operations.

Security breaches, including cyber-attacks, phishing attacks or attempts to misappropriate or compromise confidential or proprietary information or sabotage enterprise IT systems, are becoming increasingly frequent and more sophisticated. We depend on the uninterrupted operation of our IT systems to manage our operations, store and retrieve business and financial data and facilitate internal communications and communications with customers, subcontractors, suppliers and distribution partners. We experience security incidents of varying degrees on an ongoing basis. We take steps to detect and investigate any security incidents and prevent their recurrence, but, in some cases, we might be unaware of an incident or its magnitude and effects. Because the techniques used to obtain unauthorized access to or sabotage networks and systems change frequently, we may be unable to anticipate these techniques or to implement adequate protections. These security incidents may involve unauthorized access, misuse or disclosure of intellectual property or confidential or proprietary information regarding our business or that of our customers or business partners. We also may be subject to unauthorized access to our IT systems through a security breach or cyber-attack. In the past there have been attempts by third parties to penetrate and/or infect our network and systems with malicious software in an effort to gain access to our network and systems. Recently, several large organizations have been infected by “ransomware,” through which an attacker gains access to the organization’s computer files, renders them temporarily inaccessible and threatens to permanently delete them if a cash ransom is not paid by a specified deadline. Third parties may continue to attempt to fraudulently induce employees, users, or customers to disclose sensitive information in order to gain access to our network and systems. The IT systems of our customers, suppliers, and distribution partners and the links between our IT systems and our customers are subject to the same risks as those of our IT systems. In the event of a security breach, our business and reputation could be harmed and we could be subject to legal and regulatory claims which could negatively impact our financial condition and results of operations.

Acquisitions and strategic investments present risks, and we may not realize the goals that were contemplated at the time of a transaction.

In the past, we have acquired technology companies whose products complement our products. We also have made a number of strategic investments in other technology companies. We may make similar acquisitions and strategic investments in the future, which present risks, including:

our ongoing business may be disrupted and our management's attention may be diverted by investment, acquisition, transition or integration activities;
an acquisition or strategic investment may not further our business strategy as we expected, and we may not integrate an acquired company or technology as successfully as we expected;
our operating results or financial condition may be adversely impacted by claims or liabilities that we assume from an acquired company or technology or that are otherwise related to an acquisition;
we may have difficulty incorporating acquired technologies or products with our existing product lines;
we may have higher than anticipated costs in continuing support and development of acquired products, and in general and administrative functions that support such products;
our strategic investments may not perform as expected, and we may be required to recognize a loss on any or all of our strategic investments; and
we may experience unexpected changes in how we are required to account for our acquisitions and strategic investments pursuant to U.S. generally accepted accounting principles (GAAP).

The occurrence of any of these risks could have a material adverse effect on our business, results of operations, financial condition or cash flows, particularly in the case of a larger acquisition or several concurrent acquisitions or strategic investments.

If we are unable to maintain effective internal controls, our stock price could be adversely affected.

We are subject to the ongoing internal control provisions of Section 404 of the Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act). Our controls necessary for continued compliance with the Sarbanes-Oxley Act may not operate effectively at all times and may result in a material weakness disclosure. The identification of material weaknesses in internal control, if any, could indicate a lack of proper controls to generate accurate financial statements and could cause investors to lose confidence and our stock price to drop.


21


We compete with others to attract and retain key personnel, and any loss of, or inability to attract, such personnel would harm us.

We depend on the efforts and abilities of certain key members of management and other technical personnel. Our future success depends, in part, upon our ability to retain, develop and transition such personnel and attract and retain other highly qualified personnel, particularly product engineers. Competition for such personnel is intense and we may not be successful in hiring or retaining new or existing qualified personnel. Changes to the U.S. immigration laws may also impact the availability of qualified personnel. From time to time we have effected restructurings that eliminate a number of positions. Even if such personnel are not directly affected by the restructuring effort, such terminations can have a negative impact on morale and our ability to attract and hire new qualified personnel in the future. If we are unable to retain or develop existing qualified personnel or are unable to hire new qualified personnel, as needed, our business, financial condition and results of operations could be seriously harmed. Further, changes to our qualified personnel, including key members of management, may be disruptive to our business, and any failure to successfully assimilate key new hires, or to successfully retain, develop and transition promoted employees, could adversely affect our business and results of operations.

Unfavorable results of legal proceedings could adversely affect our financial condition and operating results.

From time to time we are subject to various legal proceedings and claims that arise out of the ordinary conduct of our business. The amount of damages alleged in certain legal claims may be significant. Certain other claims involving the Company are not yet resolved, including those that are discussed under "Note 16. Litigation Settlement and Contingencies" to our consolidated financial statements, included in Item 8. "Financial Statements and Supplementary Data" of this Form 10-K, and additional claims may arise in the future. Results of legal proceedings cannot be predicted with certainty. Regardless of its merit, litigation may be both time-consuming and disruptive to our operations and cause significant expense and diversion of management attention and we may enter into material settlements to avoid these risks. Entering into settlements may result in payment of significant amounts which may materially and adversely affect our financial condition and operation results. Should we fail to prevail in certain matters, or should several of these matters be resolved against us, we may be faced with significant monetary damages or injunctive relief against us that would materially and adversely affect a portion of our business and might materially and adversely affect our financial condition and operating results.

Our products could have defects which could result in reduced revenues and claims against us.

We develop complex and evolving products that include both hardware and software. Despite our testing efforts and those of our subcontractors, defects may be discovered in existing or new products. Such defects may cause us to incur significant warranty, support and repair or replacement costs, divert the attention of our engineering personnel from our product development efforts and harm our relationships with customers. Subject to certain terms and conditions, we have agreed to compensate certain customers for limited specified costs they actually incur in the event our hardware products experience epidemic failure. As a result, epidemic failure and other performance problems could result in claims against us or the delay or loss of market acceptance of our products and would likely harm our business. Our customers could also seek damages from us for their losses.

In addition, we could be subject to product liability claims. A product liability claim brought against us, even if unsuccessful, would likely be time-consuming and costly to defend. Product liability risks are particularly significant with respect to aerospace, automotive and medical applications because of the risk of serious harm to users of these products. Any product liability claim, whether or not determined in our favor, could result in significant expense, divert the efforts of our technical and management personnel, and harm our business.


22


In preparing our financial statements, we make good faith estimates and judgments that may change or turn out to be erroneous.

In preparing our financial statements in conformity with accounting principles generally accepted in the U.S., we must make estimates and judgments in applying our critical accounting policies. Those estimates and judgments have a significant impact on the results we report in our consolidated financial statements. The most difficult estimates and subjective judgments that we make concern valuation of marketable and non-marketable securities, revenue recognition, inventories, long-lived assets including acquisition-related intangibles, goodwill, taxes and stock-based compensation. We base our estimates on historical experience, input from outside experts and various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We also have other key accounting policies that are not as subjective, and therefore, their application would not require us to make estimates or judgments that are as difficult, but which nevertheless could significantly affect our financial reporting. Actual results may differ materially from these estimates. If these estimates or their related assumptions change, our operating results for the periods in which we revise our estimates or assumptions could be adversely and materially affected.

Our failure to comply with the requirements of the Export Administration Regulations (EAR) and the International Traffic and Arms Regulations (ITAR) could have a material adverse effect on our financial condition and results of operations.

Our FPGAs and related technologies are subject to EAR, which are administered by the U.S. Department of Commerce. In addition, we may, from time to time, receive technical data from third parties that is subject to the ITAR, which are administered by the U.S. Department of State. EAR and ITAR govern the export and re-export of these FPGAs, the transfer of related technologies, whether in the U.S. or abroad, and the provision of services. We are required to maintain an internal compliance program and security infrastructure to meet EAR and ITAR requirements.

An inability to obtain the required export licenses, or to predict when they will be granted, increases the difficulties of forecasting shipments. In addition, security or compliance program failures that could result in penalties or a loss of export privileges, as well as stringent licensing restrictions that may make our products less attractive to overseas customers, could have a material adverse effect on our business, financial condition and/or operating results.

Our inability to effectively control the sale of our products on the gray market could have a material adverse effect on our business or results of operations.

We market and sell our products directly to OEMs and through authorized third-party distributors which helps to ensure that products delivered to our customers are authentic and properly handled.  From time to time, customers may purchase products bearing our name from the unauthorized "gray market."   These parts may be counterfeit, salvaged or re-marked parts, or parts that have been altered, mishandled, or damaged.  Gray market products result in shadow inventory that is not visible to us, thus making it difficult to forecast supply or demand.  Also, when gray market products enter the market, we and our authorized distributors may compete with brokers of these discounted products, which can adversely affect demand for our products and negatively impact our margins.  In addition, our reputation with customers may be negatively impacted when gray market products bearing our name fail or are found to be substandard.

The conflict minerals provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act could result in additional costs and liabilities.

In accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act, the SEC established disclosure and reporting requirements for companies whose products incorporate "conflict" minerals mined from the Democratic Republic of Congo and adjoining countries, regardless of whether such products are manufactured by those companies or by third parties. These requirements could affect the sourcing and availability of minerals used in the manufacture of our semiconductor products. The costs associated with complying with the disclosure requirements include those for due diligence in regard to the sources of any conflict minerals used in our products, remediation and other changes to products, processes, or sources of supply as a consequence of such verification activities. We may face reputational challenges if we are unable to sufficiently verify the origins for all minerals used in our products through the due diligence process we implement. Moreover, some of our customers may require that all of the components of our products are certified as conflict-free, and we may be unable to verify the origin of the raw materials used in our products to the extent necessary to make this certification.



23


Exposure to greater-than-anticipated income tax liabilities, changes in tax rules and regulations, changes in interpretation of tax rules and regulations, or unfavorable assessments from tax audits could affect our effective tax rates, financial condition and results of operations.

We are a U.S.-based multinational company subject to tax in multiple U.S. and foreign tax jurisdictions. Our income tax obligations could be affected by many factors, including but not limited to changes to our corporate operating structure, intercompany arrangements and tax planning strategies.

Our income tax expense is computed based on tax rates at the time of the respective financial period.  Our future effective tax rates, financial condition and results from operations could be unfavorably affected by changes in the tax rates in jurisdictions where our income is earned, by changes in the tax rules and regulations or the interpretation of tax rules and regulations in the jurisdictions in which we do business or by changes in the valuation of our deferred tax assets.

Recently enacted U.S. tax legislation significantly changed the taxation of U.S.-based multinational corporations, by, among other things, reducing the U.S. corporate income tax rate, adopting elements of a territorial tax system, assessing a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred, and imposing new taxes on certain foreign-sourced earnings. The legislation is unclear in some respects and will require interpretations and implementing regulations by the Internal Revenue Service, as well as state tax authorities, and the legislation could be subject to amendments and technical corrections, any of which could lessen or increase certain adverse impacts of the legislation. A significant portion of our earnings are earned by our subsidiaries outside the U.S. Changes to the taxation of certain foreign earnings resulting from the newly enacted U.S. tax legislation, along with the state tax impact of these changes, may have an adverse effect on our effective tax rate. Furthermore, changes to the taxation of undistributed foreign earnings could change our future intentions regarding reinvestment of such earnings. The foregoing items could have a material effect on our business, cash flow, results of operations or financial condition.

In addition, we are subject to examinations of our income tax returns by domestic and foreign tax authorities.  We regularly assess the likelihood of outcomes resulting from these examinations to determine the adequacy of our provision for income taxes and have reserved for potential adjustments that may result from the current examinations. There can be no assurance that the final determination of any of these examinations will not have an adverse effect on our effective tax rates, financial condition and results of operations.
 
Considerable amounts of shares of our common stock are available for issuance under our equity incentive plans, and significant issuances in the future may adversely impact the market price of our common stock.

As of March 31, 2018 we had 2.00 billion authorized shares of common stock, of which 253.4 million shares were outstanding. In addition, 27.7 million shares of common stock were reserved for issuance pursuant to our equity incentive plans and Amended and Restated 1990 Employee Qualified Stock Purchase Plan (ESPP). The availability of substantial amounts of our common stock resulting from the exercise or settlement of equity awards outstanding under our equity incentive plans, which would be dilutive to existing stockholders, could adversely affect the prevailing market price of our common stock and could impair our ability to raise additional capital through the sale of equity securities.

We have indebtedness that could adversely affect our financial condition and prevent us from fulfilling our debt obligations.

The aggregate amount of our consolidated indebtedness as of March 31, 2018 was $1.75 billion (principal amount), which consists of $500.0 million in aggregate principal amount of our 2.125% Notes due 2019 (2019 Notes), $500.0 million in aggregate principal amount of our 3.000% Notes due 2021 (2021 Notes) and $750.0 million principal amount of our 2.950% senior notes due 2024 (2024 Notes). We also may incur additional indebtedness in the future. Our indebtedness may:

make it difficult for us to satisfy our financial obligations, including making scheduled principal and interest payments on the debentures and our other indebtedness;
limit our ability to borrow additional funds for working capital, capital expenditures, acquisitions or other general corporate purposes;
limit our ability to use our cash flow or obtain additional financing for future working capital, capital expenditures, acquisitions or other general business purposes;
require us to use a portion of our cash flow from operations to make debt service payments;
limit our flexibility to plan for, or react to, changes in our business and industry;
place us at a competitive disadvantage compared to our less leveraged competitors; and
increase our vulnerability to the impact of adverse economic and industry conditions.



24


Our ability to meet our debt service obligations will depend on our future performance, which will be subject to financial, business and other factors affecting our operations, many of which are beyond our control.

The agreements governing the 2019 Notes, 2021 Notes and 2024 Notes contain covenants that may adversely affect our ability to operate our business.

The indentures governing the 2019 Notes, 2021 Notes and 2024 Notes contain various covenants limiting our and our subsidiaries' ability to, among other things:

create certain liens on principal property or the capital stock of certain subsidiaries;
enter into certain sale and leaseback transactions with respect to principal property; and
consolidate or merge with, or convey, transfer or lease all or substantially all our assets, taken as a whole, to another person.

A failure to comply with these covenants and other provisions in these indentures could result in events of default under the indentures, which could permit acceleration of the 2019 Notes, the 2021 Notes and the 2024 Notes. Any required repayment as a result of such acceleration could have a material adverse effect on our business, results of operations, financial condition or cash flows.


ITEM 1B.
UNRESOLVED STAFF COMMENTS
Not applicable.

ITEM 2.
PROPERTIES

Our corporate offices, which include the administrative, sales, customer support, marketing, R&D and manufacturing and testing groups, are located in San Jose, California. This main site consists of adjacent buildings providing 588,000 square feet of space, which we own. We also own one parcel of land totaling approximately 84 acres in South San Jose near our corporate facility. At present, we do not have any plans to develop the land.

We own a 228,000 square foot facility in the metropolitan area of Dublin, Ireland, which serves as our regional headquarters in Europe. The Irish facility is primarily used for service and support for our customers in Europe, R&D, marketing and IT support.
 
We own a 222,000 square foot facility in Singapore, which serves as our Asia Pacific regional headquarters. We own the building but the land is subject to a 30-year lease expiring in November 2035. The Singapore facility is primarily used for manufacturing support and testing of our products and services for our customers in Asia Pacific/Japan, coordination and management of certain third parties in our supply chain and R&D. Excess space in the facility is leased to tenants under long-term lease agreements.
  
We own a 130,000 square foot facility in Longmont, Colorado. The Longmont facility serves as a primary location and data center for our software efforts in the areas of R&D, manufacturing and quality control. In addition, we own a 200,000 square foot facility and 40 acres of land adjacent to the Longmont facility for future expansion. The facility is partially leased to tenants under long-term lease agreements and partially used by us.

We lease office facilities for our engineering design centers in Hyderabad, India; Albuquerque, New Mexico; Edinburgh, Scotland; Ottawa, Canada; Beijing, China; Belfast, Northern Ireland; Cork, Ireland and Gothenberg, Sweden. We also lease sales offices in various locations throughout North America, which include the metropolitan areas of Chicago, Dallas, Detroit, Nashua, Raleigh, San Diego as well as international sales offices located in the metropolitan areas of Bangalore, Beijing, Chengdu, Brussels, Helsinki, Hong Kong, London, Milan, Munich, Nanjing, Paris, Seoul, Shanghai, Shenzhen, Stockholm, Taichung, Taipei, Tel Aviv, Tokyo and Xi'an.

ITEM 3.
LEGAL PROCEEDINGS

For information regarding our legal proceedings, see "Note 16. Litigation Settlements and Contingencies" to our consolidated financial statements, included in Item 8. "Financial Statements and Supplementary Data", which is incorporated herein by reference.

ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.

25




PART II

ITEM 5.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock trades on the Nasdaq Global Select Market under the symbol XLNX. As of May 4, 2018, there were approximately 450 stockholders of record, which does not include beneficial owner of stock held in street name (i.e., through a brokerage firm, bank, broker-dealer, trust or other similar organization).
The following table sets forth the high and low closing sale prices, for the periods indicated, for our common stock as reported by the Nasdaq Global Select Market:
 
Fiscal 2018
 
Fiscal 2017
 
High
 
Low
 
High
 
Low
First Quarter
$
68.07

 
$
55.10

 
$
47.45

 
$
42.92

Second Quarter
70.83

 
61.02

 
54.46

 
45.48

Third Quarter
74.50

 
67.42

 
61.24

 
49.61

Fourth Quarter
77.07

 
62.82

 
60.32

 
57.37

Dividends Declared Per Common Share
The following table presents the quarterly dividends declared on our common stock for the periods indicated:
 
Fiscal 2018

Fiscal 2017
First Quarter
$
0.35

 
$
0.33

Second Quarter
0.35

 
0.33

Third Quarter
0.35

 
0.33

Fourth Quarter
0.35

 
0.33

On April 24, 2018, our Board of Directors declared a cash dividend of $0.36 per common share for the first quarter of fiscal 2019. The dividend is payable on June 4, 2018 to stockholders of record as of May 15, 2018.
Securities Authorized for Issuance Under Equity Compensation Plans
See "Equity Compensation Plan Information," included in Item 12. "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters" in Part III of this Form 10-K for information regarding our equity compensation plans.
Issuer Purchases of Equity Securities

The following table summarizes the Company's repurchase of its common stock during the fourth quarter of fiscal 2018.

 
 
Total Number
of Shares Purchased
 
Average
Price Paid
per Share
 
Total Number of
Shares Purchased
as Part of Publicly Announced Program
 
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (1)
(In thousands, except per share amounts)
 
 
 
 
Period
 
 
 
 
December 31, 2017 to February 3, 2018
 
448

 
$
72.35

 
448

 
$
338,922

February 4, 2018 to March 3, 2018
 
956

 
$
72.00

 
956

 
$
270,098

March 4, 2018 to March 31, 2018
 
871

 
$
72.01

 
871

 
$
207,379

Total for Quarter
 
2,275

 


 
2,275

 
 

(1) In May 2016, the Board authorized the repurchase of up to $1.00 billion of the Company's common stock and debentures (2016 Repurchase Program). The 2016 Repurchase Program has no stated expiration date. Through March 31, 2018, the Company had used $792.6 million of the $1.00 billion authorized under

26


the 2016 Repurchase Program, leaving a balance of $207.4 million available for future repurchases. The Company's current policy is to retire all repurchased shares, and consequently, no treasury shares were held as of March 31, 2018 and April 1, 2017.

See "Note 13. Stockholders' Equity" to our consolidated financial statements, included in Item 8. "Financial Statements and Supplementary Data" for information regarding our stock repurchase plans.
Company Stock Price Performance
The following graph shows a comparison of cumulative total return for our common stock, the Standard & Poor's 500 Stock Index (S&P 500 Index), and the Standard & Poor's 500 Semiconductors Index (S&P 500 Semiconductors Index). The graph covers the period from March 28, 2013, the last trading day before our fiscal 2013, to March 29, 2018, the last trading day of our fiscal 2018. The graph and table assume that $100 was invested on March 28, 2013 in our common stock, the S&P 500 Index and the S&P 500 Semiconductors Index and that all dividends were reinvested.
chart-97fbbcfb8be439acbe8.jpg
Company / Index
03/28/13
 
03/28/14
 
03/27/15
 
04/01/16
 
03/31/17
 
03/29/18
Xilinx, Inc.
100.00

 
144.33

 
116.57

 
134.83

 
168.24

 
214.37

S&P 500 Index
100.00

 
120.89

 
136.89

 
140.71

 
163.83

 
186.75

S&P 500 Semiconductors Index
100.00

 
128.69

 
162.88

 
167.09

 
229.27

 
312.94


Note: Stock price performance and indexed returns for our common stock are historical and are not indicators of future price performance or future investment returns.


27


ITEM 6.
SELECTED FINANCIAL DATA
Consolidated Statement of Income Data
Five years ended March 31, 2018
(In thousands, except per share amounts)
 
 
March 31, 2018(1)
 
April 1, 2017
 
April 2, 2016
 
March 28, 2015 (2)
 
March 29, 2014 (3)
Net revenues
 
$
2,539,004

 
$
2,349,330

 
$
2,213,881

 
$
2,377,344

 
$
2,382,531

Operating income
 
745,054

 
699,394

 
669,881

 
755,078

 
748,927

Income before income taxes
 
750,411

 
691,080

 
636,825

 
740,076

 
709,526

Provision for income taxes
 
238,030

 
68,568

 
85,958

 
91,860

 
79,138

Net income
 
512,381

 
622,512

 
550,867

 
648,216

 
630,388

 
 
 
 
 
 
 
 
 
 
 
Net income per common share:
 
 
 
 
 
 
 
 
 
 
Basic
 
$
2.05

 
$
2.47

 
$
2.14

 
$
2.44

 
$
2.37

Diluted
 
$
1.99

 
$
2.32

 
$
2.05

 
$
2.35

 
$
2.19

Shares used in per share calculations:
 
 
 
 
 
 
 
 
 
 
Basic
 
249,595

 
252,301

 
257,184

 
265,480

 
266,431

Diluted
 
257,960

 
268,813

 
268,667

 
276,123

 
287,396

Cash dividends per common share
 
$
1.40


$
1.32

 
$
1.24

 
$
1.16

 
$
1.00

(1)
Fiscal 2018 consolidated statement of income data included executive transition costs of $33,351, and the impact of the US tax law changes (see "Note 14. Income Taxes" to our consolidated financial statements included in Item 8. "Financial Information and Supplementary Data" for more information).
(2)
Fiscal 2015 consolidated statement of income data included restructuring charges of $24,491.
(3)
Fiscal 2014 consolidated statement of income data included litigation charges of $9,410 and loss on extinguishment of convertible debentures of $9,848.
Consolidated Balance Sheet Data
Five years ended March 31, 2018
(In thousands)
 
 
2018
 
2017
 
2016
 
2015
 
2014
Working capital
 
$
3,207,283

 
$
2,982,920

 
$
2,972,261

 
$
2,971,259

 
$
2,077,488

Total assets
 
5,055,687

 
4,740,532

 
4,819,269

 
4,892,146

 
5,029,176

Long-term debt
 
1,214,440

 
995,247

 
993,639

 
992,058

 
990,281

Other long-term liabilities
 
573,809

 
339,050

 
278,446

 
304,479

 
266,438

Stockholders' equity
 
2,330,235

 
2,507,633

 
2,589,893

 
2,611,594

 
2,752,682

.



28



ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This discussion and analysis of financial condition and results of operations should be read in conjunction with our consolidated financial statements and accompanying notes included in Item 8. "Financial Statements and Supplementary Data."

Cautionary Statement

The statements in this Management's Discussion and Analysis that are forward-looking, within the meaning of the Private Securities Litigation Reform Act of 1995, involve numerous risks and uncertainties and are based on current expectations. The reader should not place undue reliance on these forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including those risks discussed under "Risk Factors" and elsewhere in this document. Often, forward-looking statements can be identified by the use of forward-looking words, such as "anticipates," "believes," "continue," "could," "estimates," "expects," "intends," "may," "plans," "projects," "should," "will," "would" and other similar terminology, or the negative of such terms. We disclaim any responsibility to update or revise any forward-looking statement provided in this Management's Discussion and Analysis for any reason.

Nature of Operations

We design and develop programmable devices and associated technologies, including ICs in the form of PLDs, software design tools and predefined system functions delivered as IP. In addition to our programmable platforms, we provide design services, customer training, field engineering and technical support. Our PLDs include FPGAs, CPLDs and programmable SoCs. These devices are standard products that our customers program to perform desired logic functions. Our products are designed to provide high integration and quick time-to-market for electronic equipment manufacturers in end markets such as Communication & Data Center, Industrial, Aerospace & Defense, and Broadcast, Consumer & Automotive. We sell our products globally through independent domestic and foreign distributors and through direct sales to OEMs by selected independent sales representative firms and by a direct sales management organization.

Critical Accounting Policies and Estimates

The methods, estimates and judgments we use in applying our most critical accounting policies have a significant impact on the results we report in our consolidated financial statements. The SEC has defined critical accounting policies as those that are most important to the portrayal of our financial condition and results of operations and require us to make our most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, our critical accounting policies include: valuation of marketable securities, which impacts losses on debt and equity securities when we record impairments; revenue recognition, which impacts the recording of revenues; and valuation of inventories, which impacts cost of revenues and gross margin. Our critical accounting policies also include: the assessment of impairment of long-lived assets which impacts their valuation; the assessment of the recoverability of goodwill, which impacts goodwill impairment; accounting for income taxes, which impacts the provision or benefit recognized for income taxes, as well as, the valuation of deferred tax assets recorded on our consolidated balance sheet; and valuation and recognition of stock-based compensation, which impacts gross margin, R&D expenses, and selling, general and administrative (SG&A) expenses. Below, we discuss these policies further, as well as the estimates and judgments involved. We also have other key accounting policies that are not as subjective, and therefore, their application would not require us to make estimates or judgments that are as difficult, but which nevertheless could significantly affect our financial reporting.

Valuation of Marketable Securities and Non-marketable Securities

Our short-term and long-term investments consist of primarily marketable debt, and to a lesser extent equity securities. As of March 31, 2018, we had marketable debt and equity securities with a fair value of $2.18 billion.

We determine the fair values for marketable debt and equity securities using industry standard pricing services, data providers and other third-party sources and by internally performing valuation testing and analyses. See "Note 3. Fair Value Measurements" to our consolidated financial statements, included in Item 8. "Financial Statements and Supplementary Data," for details of the valuation methodologies. In determining if and when a decline in value below the adjusted cost of marketable debt and equity securities is other than temporary, we evaluate on an ongoing basis the market conditions, trends of earnings, financial condition, credit ratings, any underlying collateral and other key measures for our investments. We did not record any other-than-temporary impairment for marketable debt or equity securities in fiscal 2018, 2017 or 2016.


29



Our investments in non-marketable equity securities of private companies are accounted for by using the cost method. These investments are measured at fair value on a non-recurring basis when they are deemed to be other-than-temporarily impaired. In determining whether a decline in value of non-marketable equity investments in private companies has occurred and is other than temporary, an assessment is made by considering available evidence, including the general market conditions in the investee’s industry, the investee’s product development status and subsequent rounds of financing and the related valuation and/or our participation in such financings. We also assess the investee’s ability to meet business milestones and the financial condition and near-term prospects of the individual investee, including the rate at which the investee is using its cash, the investee’s need for possible additional funding at a lower valuation and any bona fide offer to purchase the investee from a prospective acquirer. The valuation methodology for determining the fair value of non-marketable equity securities is based on the factors noted above which require management judgment and are Level 3 inputs. See “Note 3. Fair Value Measurements” to our consolidated financial statements, included in Item 8. “Financial Statements and Supplementary Data,” for additional information. When a decline in value is deemed to be other than temporary, we recognize an impairment loss in the current period’s operating results to the extent of the decline. The impairments loss for non-marketable equity securities were not material during all periods presented.

Revenue Recognition

Sales to distributors are made under agreements providing distributor price adjustments and rights of return under certain circumstances. Revenue and costs relating to distributor sales are deferred until products are sold by the distributors to the distributors' end customers (our revenue recognition policy will change starting fiscal 2019, See "Note 2. Summary of Significant Accounting Policies and Concentrations of Risk" to our consolidated financial statements, included in Item 8). For fiscal 2018, approximately 53% of our net revenues were from products sold to distributors for subsequent resale to OEMs or their subcontract manufacturers. Revenue recognition depends on notification from the distributor that product has been sold to the distributor's end customer. Also reported by the distributor are product resale price, quantity and end customer shipment information, as well as inventory on hand. Reported distributor inventory on hand is reconciled to deferred revenue balances monthly. We maintain system controls to validate distributor data and to verify that the reported information is accurate. Deferred income on shipments to distributors reflects the estimated effects of distributor price adjustments and the estimated amount of gross margin expected to be realized when distributors sell through product purchased from us. Accounts receivable from distributors are recognized and inventory is relieved when title to inventories transfers, typically upon shipment from Xilinx at which point we have a legally enforceable right to collection under normal payment terms.

As of March 31, 2018, we had $31.8 million of deferred revenue and $6.6 million of deferred cost of revenues recognized as a net $25.2 million of deferred income on shipments to distributors. As of April 1, 2017, we had $74.2 million of deferred revenue and $19.6 million of deferred cost of revenues recognized as a net $54.6 million of deferred income on shipments to distributors. The deferred income on shipments to distributors that will ultimately be recognized in our consolidated statement of income will be different than the amount shown on the consolidated balance sheet due to actual price adjustments issued to the distributors when the product is sold to their end customers.

Revenue from sales to our direct customers is recognized upon shipment provided that persuasive evidence of a sales arrangement exists, the price is fixed, title has transferred, collection of resulting receivables is reasonably assured, and there are no customer acceptance requirements and no remaining significant obligations. For each of the periods presented, there were no significant formal acceptance provisions with our direct customers.

Revenue from software licenses is deferred and recognized as revenue over the term of the licenses of one year. Revenue from support services is recognized when the service is performed. Revenue from software licenses and support services were less than 5% of net revenues for all of the periods presented.

Allowances for end customer sales returns are recorded based on historical experience and for known pending customer returns or allowances.

Valuation of Inventories

Inventories are stated at the lower of actual cost (determined using the first-in, first-out method) or market (estimated net realizable value). The valuation of inventory requires us to estimate excess or obsolete inventory as well as inventory that is not of salable quality. We review and set standard costs quarterly to approximate current actual manufacturing costs. Our manufacturing overhead standards for product costs are calculated assuming full absorption of actual spending over actual volumes. Given the cyclicality of the market, the obsolescence of technology and product lifecycles, we write down inventory based on forecasted demand and technological obsolescence. These forecasts are developed based on inputs from our customers, including bookings and extended

30


but uncommitted demand forecasts, and internal analyses such as customer historical purchasing trends and actual and anticipated design wins, as well as market and economic conditions, technology changes, new product introductions and changes in strategic direction. These factors require estimates that may include uncertain elements. The estimates of future demand that we use in the valuation of inventory are the basis for our published revenue forecasts, which are also consistent with our short-term manufacturing plans. The differences between our demand forecast and the actual demand in the recent past have not resulted in any material write down in our inventory. If our demand forecast for specific products is greater than actual demand and we fail to reduce manufacturing output accordingly, we could be required to write down additional inventory, which would have a negative impact on our gross margin.

Impairment of Long-Lived Assets

Long-lived assets to be held and used are reviewed for impairment if indicators of potential impairment exist. Impairment indicators are reviewed on a quarterly basis. When indicators of impairment exist and assets are held for use, we estimate future undiscounted cash flows attributable to the assets. In the event such cash flows are not expected to be sufficient to recover the recorded value of the assets, the assets are written down to their estimated fair values based on the expected discounted future cash flows attributable to the assets or based on appraisals. Factors affecting impairment of assets held for use include the ability of the specific assets to generate separately identifiable positive cash flows.

When assets are removed from operations and held for sale, we estimate impairment losses as the excess of the carrying value of the assets over their fair value. Market conditions are amongst the factors affecting impairment of assets held for sale. Changes in any of these factors could necessitate impairment recognition in future periods for assets held for use or assets held for sale.

Long-lived assets such as property, plant and equipment are considered non-financial assets, and are only measured at fair value when indicators of impairment exist.

Goodwill

Goodwill is not amortized but is subject to impairment tests on an annual basis, or more frequently if indicators of potential impairment exist, and goodwill is written down when it is determined to be impaired. We perform an annual impairment review in the fourth quarter of each fiscal year and compare the fair value of the reporting unit in which the goodwill resides to its carrying value. If the carrying value exceeds the fair value, the goodwill of the reporting unit is potentially impaired. For purposes of impairment testing, Xilinx operates as a single reporting unit. We use the quoted market price method to determine the fair value of the reporting unit. Based on the impairment review performed during the fourth quarter of fiscal 2018, there was no impairment of goodwill in fiscal 2018. Unless there are indicators of impairment, our next impairment review for goodwill will be performed and completed in the fourth quarter of fiscal 2019. To date, no impairment indicators have been identified.

Accounting for Income Taxes

Xilinx is a multinational corporation operating in multiple tax jurisdictions. We must determine the allocation of income to each of these jurisdictions based on estimates and assumptions and apply the appropriate tax rates for these jurisdictions. We undergo routine audits by taxing authorities regarding the timing and amount of deductions and the allocation of income among various tax jurisdictions. Tax audits often require an extended period of time to resolve and may result in income tax adjustments if changes to the allocation are required between jurisdictions with different tax rates.

In determining income for financial statement purposes, we must make certain estimates and judgments. These estimates and judgments occur in the calculation of certain tax liabilities and in the determination of the recoverability of certain deferred tax assets, which arise from temporary differences between the tax and financial statement recognition of revenue and expense. Additionally, we must estimate the amount and likelihood of potential losses arising from audits or deficiency notices issued by taxing authorities. The taxing authorities' positions and our assessment can change over time resulting in a material effect on the provision for income taxes in periods when these changes occur.

We must also assess the likelihood that we will be able to recover our deferred tax assets. If recovery is not likely, we must increase our provision for taxes by recording a reserve in the form of a valuation allowance for the deferred tax assets that we estimate will not ultimately be recoverable.

We perform a two-step approach to recognize and measure uncertain tax positions relating to accounting for income taxes. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being ultimately realized.

31



We have recorded provisional estimates associated with the December 22, 2017 enactment of the Tax Cuts and Jobs Act (TCJA). The SEC has provided accounting and reporting guidance that allows us to report provisional amounts within a measurement period up to one year due to the complexities inherent in adopting the changes. As of March 31, 2018, we consider the estimates for the one-time transition tax and for the deferred tax liabilities for U.S. taxes on investments in foreign subsidiaries to be provisional. New guidance from regulators, interpretation of U.S. federal and state laws, and refinement of our estimates from ongoing analysis of data and tax positions may change these provisional amounts. See "Note 14. Income Taxes" to our consolidated financial statements included in Item 8. "Financial Statements and Supplementary Data."

Stock-Based Compensation

Determining the appropriate fair-value model and calculating the fair value of stock-based awards at the date of grant requires judgment. We use the Black-Scholes option-pricing model to estimate the fair value of rights to purchase shares under our ESPP. Option pricing models, including the Black-Scholes model, also require the use of input assumptions, including expected stock price volatility, expected life, expected dividend rate, expected forfeiture rate and expected risk-free rate of return. We use implied volatility based on traded options in the open market as we believe implied volatility is more reflective of market conditions and a better indicator of expected volatility than historical volatility. We will continue to review our input assumptions and make changes as deemed appropriate depending on new information that becomes available. Higher volatility and expected lives result in a proportional increase to stock-based compensation determined at the date of grant. The expected dividend rate and expected risk-free rate of return do not have as significant an effect on the calculation of fair value.

In addition, we developed an estimate of the number of stock-based awards which will be forfeited due to employee turnover. Quarterly changes in the estimated forfeiture rate have an effect on reported stock-based compensation, as the effect of adjusting the rate for all expense amortization is recognized in the period the forfeiture estimate is changed. If the actual forfeiture rate is higher than the estimated forfeiture rate, then an adjustment is made to increase the estimated forfeiture rate, which will result in a decrease to the expense recognized in the financial statements. If the actual forfeiture rate is lower than the estimated forfeiture rate, then an adjustment is made to decrease the estimated forfeiture rate, which will result in an increase to the expense recognized in the financial statements. The impact of forfeiture true up was not material for all periods presented. The expense we recognize in future periods could also differ significantly from the current period and/or our forecasts due to adjustments in the assumed forfeiture rates.

Results of Operations

The following table sets forth statement of income data as a percentage of net revenues for the fiscal years indicated:

2018
 
2017
 
2016
Net revenues
100.0
%
 
100.0
%
 
100.0
%
Cost of revenues
29.8

 
30.1

 
30.3

Gross margin
70.2

 
69.9

 
69.7

Operating expenses:


 

 


Research and development
25.2

 
25.6

 
24.1

Selling, general and administrative
14.3

 
14.3

 
15.0

Amortization of acquisition-related intangibles

 
0.2

 
0.3

Executive transition costs
1.3

 

 

Total operating expenses
40.8

 
40.1

 
39.4

Operating income
29.4

 
29.8

 
30.3

Interest and other income (expense), net
0.2

 
(0.4
)
 
(1.5
)
Income before income taxes
29.6

 
29.4

 
28.8

Provision for income taxes
9.4

 
2.9

 
3.9

Net income
20.2
%
 
26.5
%
 
24.9
%
 
Net Revenues
(In millions)
2018
 
Change
 
2017
 
Change
 
2016
Net revenues
$
2,539.0

 
8
%
 
$
2,349.3

 
6
%
 
$
2,213.9


32



Net revenues in fiscal 2018 were $2.54 billion, an increase of 8% as compared to fiscal 2017. Advanced Products revenues increased 28% in fiscal 2018 but were partially offset by declines from our Core Products. The increase in Advanced Products was due to higher Advanced Products sales across all end markets, especially in Industrial, Aerospace & Defense and Broadcast, Consumer & Automotive. Net revenues in fiscal 2017 were $2.35 billion, an increase of 6% as compared to fiscal 2016. Advanced Products revenues increased 45% in fiscal 2017 but were partially offset by declines from our Core Products. The increase in Advanced Products was due to higher sales across all end markets, especially in Communications & Data Center and Industrial, Aerospace & Defense. See also "Net Revenues by Product" and "Net Revenues by End Markets" below for more information on our product and end market categories.

No end customer accounted for more than 10% of net revenues for any of the periods presented.

Net Revenues by Product

We sell our products to global manufacturers of electronic products in end markets such as Communication & Data Center, Industrial, Aerospace & Defense, and Broadcast, Consumer & Automotive. The vast majority of our net revenues are generated from sales of our semiconductor products, but we also generate sales from support products. We classify our product offerings into two categories: Advanced Products and Core Products:

Advanced Products are our most recent product offerings and include the UltraScale+, UltraScale and 7-series product families.
Core Products are all other product families.

These product categories are modified on a periodic basis to better reflect the maturity of the products and advances in technology. The most recent modification was made on April 3, 2016, which was the beginning of our fiscal 2017, whereby we reclassified our product categories to be consistent with how these categories are analyzed and reviewed internally. Specifically, we have grouped the products manufactured at the 28nm, 20nm and 16nm nodes into a category named Advanced Products while all other products are included in a category named Core Products.

Net revenues by product categories for the fiscal years indicated were as follows:
 
(In millions)
2018
 
% of Total
 
% Change
 
2017
 
% of Total
 
% Change
 
2016
Advanced Products
$
1,383.0

 
54

 
28

 
$
1,080.7

 
46

 
45

 
$
746.5

Core Products
1,156.0

 
46

 
(9
)
 
1,268.6

 
54

 
(14
)
 
1,467.4

Total net revenues
$
2,539.0

 
100

 
8

 
$
2,349.3

 
100

 
6

 
$
2,213.9


Net revenues from Advanced Products increased significantly in fiscal 2018 as a result of sales growth from our 28nm, 20nm and 16nm product families. Sales from our 28nm products were approximately $900.0 million, while sales from our 20nm and 16nm products exceeded $300.0 million and $100.0 million, respectively, during fiscal 2018. We expect sales of Advanced Products to continue to grow as more customer programs enter into volume production with our 28nm, 20nm and 16nm products. In fiscal 2017, growth across all nodes of our Advanced Products families contributed to the strong revenue growth versus the comparable prior year period.

Net revenues from Core Products decreased in both fiscal 2018 and fiscal 2017 from the comparable prior year periods. The decrease in fiscal 2018 was largely driven by the decline in sales from our Virtex-5, Virtex-6 and Spartan-3 product families, while the decrease in fiscal 2017 was largely due to the decline in sales from our Spartan-3 and Virtex-6 product families.

Net Revenues by End Markets

Our end market revenue data is derived from our understanding of our end customers' primary markets. We classify our net revenues by end markets into the following three categories: Communications & Data Center; Industrial, Aerospace & Defense; and Broadcast, Consumer & Automotive. The percentage change calculation in the table below represents the year-to-year dollar change in each end market.


33


Net revenues by end markets for fiscal years indicated were as follows:
 
(% of total net revenues)
2018
 
% Change in Dollars
 
2017
 
% Change in Dollars
 
2016
Communications & Data Center
37
%
 
(7
)
 
42
%
 
9
 
41
%
Industrial, Aerospace & Defense
46

 
21

 
41

 
5
 
42

Broadcast, Consumer & Automotive
17

 
15

 
17

 
2
 
17

Total net revenues
100
%
 
8

 
100
%
 
6
 
100
%

Net revenues from Communications & Data Center decreased in fiscal 2018, but increased in fiscal 2017 from the comparable prior year periods. The decrease in fiscal 2018 was primarily due to lower sales from wireline and wireless. The increase in fiscal 2017 from the comparable prior year period was primarily due to higher sales from wireless, and to a lesser extent from wireline and data center.

Net revenues from Industrial, Aerospace & Defense increased in fiscal 2018 from the comparable prior year period. The increase in fiscal 2018 was primarily due to higher sales from all sub-segments, primarily aerospace and defense and test and measurement. Net revenues from Industrial, Aerospace & Defense increased in fiscal 2017 from the comparable prior year period. The increase in fiscal 2017 was primarily due to higher sales from test and measurement and aerospace and defense, partially offset by a decrease in sales from industrial, scientific and medical.

Net revenues from Broadcast, Consumer & Automotive increased in fiscal 2018 and slightly in fiscal 2017 from the comparable prior year periods. The increase in fiscal 2018 was due to higher sales from all sub-segments, primarily consumer. The slight increase in fiscal 2017 was due to higher sales from automotive.

Net Revenues by Geography

Geographic revenue information reflects the geographic location of the distributors, OEMs or contract manufacturers who purchased our products. This may differ from the geographic location of the end customers. Net revenues by geography for the fiscal years indicated were as follows:
 
(In millions)
2018
 
% of Total
 
% Change
 
2017
 
% of Total
 
% Change
 
2016
North America
$
768.1

 
30

 
4

 
$
738.4

 
31

 
4

 
$
710.7

Asia Pacific
1,034.2

 
41

 
8

 
956.1

 
41

 
12

 
855.9

Europe
513.7

 
20

 
13

 
456.6

 
20

 
8

 
424.7

Japan
223.0

 
9

 
13

 
198.2

 
8

 
(11
)
 
222.6

Total net revenues
$
2,539.0

 
100

 
8

 
$
2,349.3

 
100

 
6

 
$
2,213.9


Net revenues in North America increased in fiscal 2018 from the comparable prior year period. The increase was primarily due to higher sales from Aerospace and Defense. Net revenues in North America increased in fiscal 2017 from the comparable prior year period. The increase was primarily due to higher sales from Test and Measurement.

Net revenues in Asia Pacific increased in fiscal 2018 from the comparable prior year period. The increase was primarily due to higher sales from Consumer, and to a lesser extent from Industrial, Scientific and Medical. Net revenues in Asia Pacific increased in fiscal 2017 from the comparable prior year period, which was primarily driven by higher sales from Wireless Communications.

Net revenues in Europe increased in fiscal 2018 and in fiscal 2017 from the comparable prior year periods. The increases were primarily due to higher sales from Test and Measurement, partially offset by lower revenues from Wireless Communications.

Net revenues in Japan increased in fiscal 2018 from the comparable prior year period. The increase was primarily driven by higher sales in Test and Measurement and Industrial, Scientific and Medical. Net revenues in Japan decreased in fiscal 2017 from the comparable prior year period, which was primarily driven by lower sales in Industrial, Scientific and Medical.


34


Gross Margin
(In millions)
2018
 
Change
 
2017
 
Change
 
2016
Gross margin
$
1,782.6

 
9
%
 
$
1,641.1

 
6
%
 
$
1,542.0

Percentage of net revenues
70.2
%
 

 
69.9
%
 

 
69.7
%

Gross margin was slightly higher by 0.3 and 0.2 percentage point in fiscal 2018 and in fiscal 2017, respectively, from the comparable prior year periods. The slight increases in gross margin for both periods were primarily due to end-market mix, as the percentage of revenue derived from Industrial, Aerospace & Defense (which has relatively higher gross margin) has increased while the percentage of revenue from Communications & Data Center has decreased in the past two years.

Gross margin may be affected in the future due to multiple factors, including but not limited to those set forth above in "Risk Factors," included in Part I of this Form 10-K, shifts in the mix of customers and products, competitive-pricing pressure, manufacturing-yield issues and wafer pricing. We expect to mitigate any adverse impacts from these factors by continuing to improve yields on our Advanced Products, improve manufacturing efficiencies and improve average selling price management.

In order to compete effectively, we pass manufacturing cost reductions to our customers in the form of reduced prices to the extent that we can maintain acceptable margins. Price erosion is common in the semiconductor industry, as advances in both product architecture and manufacturing process technology permit continual reductions in unit cost. We have historically been able to offset much of this revenue decline in our mature products with increased revenues from newer products.

Research and Development
(In millions)
2018
 
Change
 
2017
 
Change
 
2016
Research and development
$
639.8

 
6
%
 
$
601.4

 
13
%
 
$
533.9

Percentage of net revenues
25
%
 

 
26
%
 

 
24
%

R&D spending increased $38.4 million, or 6%, during fiscal 2018 from the comparable prior year period. The increase was primarily attributable to higher employee compensation (including stock-based compensation) related to our new product development, partially offset by lower mask and wafer spending. R&D spending increased $67.5 million, or 13%, during fiscal 2017 from the comparable prior year period. The increase was primarily attributable to higher mask and wafer spending and employee compensation (including stock-based compensation) related to our new product development.

We plan to continue to selectively invest in R&D efforts in areas such as new products and more advanced process development, IP cores and software development environments. We may also consider acquisitions to complement our strategy for technology leadership and engineering resources in critical areas.

Selling, General and Administrative
(In millions)
2018
 
Change
 
2017
 
Change
 
2016
Selling, general and administrative
$
362.3

 
8
%
 
$
335.2

 
1
%
 
$
331.7

Percentage of net revenues
14
%
 

 
14
%
 

 
15
%

SG&A expenses increased by $27.1 million or 8% during fiscal 2018, and by $3.5 million or 1% during fiscal 2017, from the comparable prior year periods as we incurred higher employee compensation in both years (including stock based compensation) from higher headcount relating to revenue growth.

Executive Transition Costs

During the fourth quarter of fiscal 2018, we announced the transition of our President and Chief Executive Officer position, whereby Moshe Gavrielov resigned from those roles and Victor Peng assumed these roles. Additionally, we also implemented restructuring measures to realign resources and drive overall operating efficiencies, which impacted approximately 60 positions in various geographies and functions worldwide. We recorded total transition charges of $33.4 million in the fourth quarter of fiscal 2018, primarily related to severance pay expenses and other benefits. As of the end of fiscal 2018, there was $10.4 million accrual for severance and other benefits that are expected to be paid primarily during fiscal 2019.

The following table summarizes the transition costs accrual activity for fiscal 2018:

35


(In millions)
Employee severance and benefits
Total executive transition costs
$
33.4

Cash payments
(6.4
)
Non-cash charges
(16.6
)
Balance as of March 31, 2018
$
10.4



Amortization of Acquisition-Related Intangibles
(In millions)
2018
 
Change
 
2017
 
Change
 
2016
Amortization of acquisition-related intangibles
$
2.2

 
(58
)%
 
$
5.1

 
(22
)%
 
$
6.6

Percentage of net revenues
%
 

 
%
 

 
%

The amortization expense decreased in fiscal 2018 and 2017 as compared to prior year periods. The decreases were due to certain intangibles that were fully amortized in fiscal 2017 and during fiscal 2018.

Stock-Based Compensation
(In millions)
2018
 
Change
 
2017
 
Change
 
2016
Stock-based compensation included in:


 


 


 


 


Cost of revenues
$
8.5

 
6
%
 
$
8.0

 
%
 
$
8.0

Research and development
76.8

 
15
%
 
66.9

 
12
%
 
59.7

Selling, general and administrative
51.9

 
8
%
 
48.0

 
8
%
 
44.3

Executive transition costs
16.6

 
100
%
 

 
%
 


$
153.8

 
25
%
 
$
122.9

 
10
%
 
$
112.0

The $30.9 million and $10.9 million increases in stock-based compensation expense for fiscal 2018 and 2017, respectively, as compared to the prior year periods were primarily related to higher expenses associated with restricted stock units, as we granted more restricted stock units at a higher fair value in the recent years. In addition, during fiscal 2018 we incurred $16.6 million of stock-based compensation related to the transition of our President and Chief Executive Officer position.

Interest and Other Income (Expense), Net
(In millions)
2018
 
Change
 
2017
 
Change
 
2016
Interest and other income (expense), net
$
5.4

 
(164
)%
 
$
(8.3
)
 
(75
)%
 
$
(33.1
)
Percentage of net revenues
%
 

 
 %
 

 
(1
)%

In fiscal 2018 we had net interest and other income of $5.4 million as compared to net interest and other expense of $8.3 million in fiscal 2017. The increase was primarily due to higher interest income from the investment portfolio, and to a lesser extent lower interest expenses from 2024 Notes and its related interest rate swap contracts as compared to the total interest expenses recognized from the 2017 Convertible Notes that matured in the first quarter of fiscal 2018. The decrease in net interest and other expense in fiscal 2017 from the prior year period was primarily due to higher interest income from the investment portfolio as a result of rising interest rate environment.

Provision for Income Taxes
(In millions)
2018
 
Change
 
2017
 
Change
 
2016
Provision for income taxes
$
238.0

 
247
%
 
$
68.6

 
(20
)%
 
$
86.0

Percentage of net revenues
9
%
 

 
3
%
 

 
4
%
Effective tax rate
32
%
 

 
10
%
 

 
13
%

On December 22, 2017, the TCJA was enacted into law. The TCJA provides for numerous significant tax law changes and modifications including the reduction of the U.S. federal corporate income tax rate from 35% to 21%, the requirement for companies

36


to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and the creation of new taxes on certain foreign-sourced earnings. Some provisions of the TCJA began to impact us in fiscal 2018, while other provisions will impact us beginning in fiscal 2019.
The corporate tax rate reduction was effective as of January 1, 2018. Since the Company has a fiscal year rather than a calendar year, it is subject to rules relating to transitional tax rates. As a result, our fiscal 2018 federal statutory rate was a blended rate of 31.5%. The change in the statutory tax rate from 35% to 31.5% for our fiscal 2018 did not have a significant impact on the effective tax rate.

The difference between the blended U.S. federal statutory tax rate of 31.5% and our effective tax rate in fiscal 2018 was primarily due to the one-time transition tax net of the reversal of the related deferred tax liabilities and the beneficial impact of income earned in lower tax rate jurisdictions as discussed in “Note 14. Income Taxes” to our consolidated financial statements, included in “Part II. Item 8, Financial Statements and Supplementary Data.”

The difference between the U.S. federal statutory tax rate of 35% and our effective tax rate in fiscal 2017 was primarily due to income earned in lower tax rate jurisdictions for which no U.S. income tax had been provided, as we intended to permanently reinvest the earnings outside of the U.S.

The increase in the effective tax rate for fiscal 2018 from the comparable prior year period was primarily due to the U.S. federal one-time transition tax of $590.2 million, a remeasurement of certain deferred tax assets and liabilities as a result of the reduction in the corporate income tax rate to 21% in the amount of $25.1 million and a release of reserves for uncertain tax positions in fiscal 2017. The increases in the effective tax rate were partially offset by the reversal of deferred tax liabilities related to U.S. federal income tax on a portion of unremitted foreign earnings that had been accrued through fiscal 2017 in the amount of $381.7 million.

The decrease in effective tax rate in fiscal 2017 compared with fiscal 2016 was primarily due to fiscal 2017 benefits from the adoption of new accounting guidance with respect to share-based payment accounting and the release of reserves for uncertain tax positions upon completion of the Internal Revenue Service examination of fiscal 2012 through 2014.
Accounting Standards Codification (ASC) 740, Income Taxes, requires companies to recognize the effect of the tax law changes in the period of enactment. However, the SEC staff issued Staff Accounting Bulletin 118 which allows companies to record provisional amounts during a measurement period that is similar to the measurement period used when accounting for business combinations. As of March 31, 2018, we recognized provisional amounts for the tax effects of the TCJA which were included as components of income tax expense from continuing operations and reflected in the effective tax rates above. We will continue to assess the impact of the recently enacted tax law on our business and our consolidated financial statements. The final impact of the TCJA recorded by us may vary materially from the provisional impact recorded due to a number of uncertainties and factors, including the need for further guidance and clarification of the new law by U.S. federal and state tax authorities and the need for further guidance on the income tax accounting.
In addition to the impacts of tax reform on fiscal 2018 previously discussed, the TCJA also establishes new tax laws that will be effective for our fiscal 2019, including, but not limited to, (1) a new provision designed to tax low-taxed income of foreign subsidiaries, which allows for the possibility of using foreign tax credits (FTCs) and a deduction of up to 50 percent to offset the income tax liability (subject to some limitations); (2) limitations on the deductibility of certain executive compensation; (3) limitations on the deductibility of entertainment expenses; and (4) limitations on the use of FTCs to reduce the U.S. income tax liability. While each of these provisions is expected to have an impact on our tax expense for fiscal 2019 and future periods, we expect the tax on low-taxed income of foreign subsidiaries to have the most significant impact.

Because of the complexity of the new tax on low-taxed income of foreign subsidiaries, we are continuing to evaluate this provision of the TCJA and the application of ASC 740. Based on recent deliberations by the Financial Accounting Standards Board (FASB), we will be allowed to make an accounting policy choice of either (1) treating taxes due on future U.S. inclusions in taxable income as a current-period expense when incurred or (2) recognize deferred taxes for temporary basis differences expected to reverse as low-taxed income in future years. Our selection of an accounting policy will depend, in part, on analyzing our facts to determine what the impact is expected to be under each method.


Financial Condition, Liquidity and Capital Resources

We have historically used a combination of cash flows from operations and equity and debt financing to support ongoing business activities, acquire or invest in critical or complementary technologies, purchase facilities and capital equipment, repurchase our

37


common stock and debentures under our repurchase program, pay dividends and finance working capital. Additionally, our investments in debt securities are liquid and available for future business needs.

Fiscal 2018 Compared to Fiscal 2017

Cash, Cash Equivalents and Short-term and Long-term Investments

The combination of cash, cash equivalents and short-term and long-term investments as of March 31, 2018 and April 1, 2017 totaled $3.55 billion and $3.44 billion, respectively. As of March 31, 2018, we had cash, cash equivalents and short-term investments of $3.45 billion and working capital of $3.21 billion. As of April 1, 2017, cash, cash equivalents and short-term investments were $3.32 billion and working capital was $2.98 billion.

As of March 31, 2018, we had $1.45 billion of cash, cash equivalents and short-term investments held by our non-U.S. entities. The recent TCJA that was signed into law on December 22, 2017 subjects U.S. companies to a one-time transition tax on total post-1986 earnings and profits of their foreign subsidiaries. The TCJA also generally allows companies to repatriate these accumulated foreign earnings without incurring additional U.S. federal taxes beginning after December 31, 2017.  Accordingly, substantially all $1.45 billion of cash, cash equivalents and short-term investments held by our non-U.S. entities will be available for use in the U.S. without incurring additional U.S. federal income taxes. The one-time transition tax liability will be payable in eight annual installments, as outlined in "Contractual Obligations" below. See “Note 14. Income Taxes” to our consolidated financial statements, included in Item 8. "Financial Statements and Supplementary Data," for additional information about the one-time transition tax.

During fiscal 2018, our operations generated net positive cash flow of $820.0 million, which was $114.1 million lower than the $934.1 million generated during fiscal 2017. The positive cash flow from operations generated during fiscal 2018 was primarily from net income as adjusted for non-cash related items and increases in income taxes payable and accrued liabilities. These items were partially offset by increases in accounts receivable, other assets and decreases in deferred income to shipments to distributors and accounts payable.

Net cash provided by investing activities was $948.2 million during fiscal 2018 as compared to $494.0 million in fiscal 2017. Net cash provided by investing activities during fiscal 2018 consisted of $1.02 billion of net sales and maturity of available-for-sale securities, which were partially offset by $49.9 million of purchases of property, plant and equipment and other intangibles and $25.9 million of other investing activities.

Net cash used in financing activities was $555.6 million in fiscal 2018, as compared to $965.2 million in fiscal 2017. Net cash used in financing activities during fiscal 2018 consisted of $474.3 million of payment to repurchase common stock, $353.1 million of dividend payments to stockholders and $457.9 million of payment for settlement of our $600.0 million principal amount of 2.625% convertible notes issued in June 2010 (2017 Convertible Notes), which were partially offset by $745.2 million of proceeds from issuance of long-term debt and $47.5 million from issuance of common stock under employee stock plans.

Accounts Receivable

Accounts receivable increased by $128.2 million and days sales outstanding (DSO) increased to 53 days at March 31, 2018 from 38 days at April 1, 2017. The accounts receivable were primarily current. The increase was primarily due to timing of customer shipments and collections.

Inventories

Inventories increased to $236.1 million as of March 31, 2018 from $227.0 million as of April 1, 2017, while combined inventory days at Xilinx and distribution decreased to 117 days at March 31, 2018 from 127 days at April 1, 2017. We attempt to maintain sufficient levels of inventory in various product, package and speed configurations in order to keep lead times short and to meet forecasted customer demand as well as address potential supply constraints. Conversely, we also attempt to minimize the handling costs associated with maintaining higher inventory levels and to fully realize the opportunities for cost reductions associated with architecture and manufacturing process advancements. We continually strive to balance these two objectives to provide excellent customer response at a competitive cost.

Property, Plant and Equipment and Other Intangibles


38


During fiscal 2018, we invested $49.9 million in property, plant and equipment and other intangibles, as compared to $72.1 million in fiscal 2017. Primary investments in fiscal 2018 were for machinery and equipment, building improvements, computer equipment and equipment related to the support of our new products development and infrastructures.

Current Liabilities

Current liabilities increased to $937.2 million at the end of fiscal 2018 from $897.2 million at the end of fiscal 2017. The changes were primarily due to a net increase in our short-term portion of long-term debt, as we reclassified $499.2 million of our 2019 Notes to short term and paid $457.9 million for conversion of our 2017 Convertible Notes, as well as increases in our income taxes payable and accrued payroll and related liabilities. These increases were partially offset by decreases of $35.3 million in other accrued liabilities and $29.4 million in deferred income on shipments to distributors.

Temporary and Stockholders' Equity

Temporary and stockholders' equity decreased $178.8 million during fiscal 2018 from $2.51 billion in fiscal 2017 to $2.33 billion in fiscal 2018. The decrease was primarily due to repurchase of common stock of approximately $474.3 million and $353.1 million of payment of dividends to stockholders. These decreases were partially offset by $512.4 million in net income for fiscal 2018 and $153.8 million of stock-based compensation.

Fiscal 2017 Compared to Fiscal 2016

Cash, Cash Equivalents and Short-term and Long-term Investments

The combination of cash, cash equivalents and short-term and long-term investments as of April 1, 2017 and April 2, 2016 totaled $3.44 billion and $3.56 billion, respectively. As of April 1, 2017, we had cash, cash equivalents and short-term investments of $3.32 billion and working capital of $2.98 billion. As of April 2, 2016, cash, cash equivalents and short-term investments were $3.34 billion and working capital was $2.97 billion.

As of April 1, 2017, we had $2.84 billion of cash, cash equivalents and short-term investments held by our non-U.S. entities. From a financial statement perspective, approximately $1.13 billion of the $2.84 billion held by our non-U.S. entities was available for use in the U.S. without accruing additional U.S. income taxes in excess of the amounts already accrued in our financial statements as of April 1, 2017. The remaining amount of non-U.S. cash, cash equivalents and short-term investments was permanently reinvested and, therefore, no U.S. current or deferred taxes accrued on this amount, which was intended for investment in our operations outside the U.S.

During fiscal 2017, our operations generated net positive cash flow of $934.1 million, which was $187.8 million higher than the $746.3 million generated during fiscal 2016. The positive cash flow from operations generated during fiscal 2017 was primarily from net income as adjusted for non-cash related items, decrease in accounts receivable and increases in accrued liabilities, accounts payable and income taxes payable. These items were partially offset by increases in inventories and other assets.

Net cash provided by investing activities was $494.0 million during fiscal 2017, as compared to net cash used by investing activities of $423.9 million in fiscal 2016. Net cash provided by investing activities during fiscal 2017 consisted of $587.4 million of net proceeds from sales and maturity of available-for-sale securities, which was partially offset by $72.1 million for purchases of property, plant and equipment and other intangibles and $21.4 million of other investing activities.

Net cash used in financing activities was $965.2 million in fiscal 2017, as compared to $711.1 million in fiscal 2016. Net cash used in financing activities during fiscal 2017 consisted of $522.0 million of cash payment to repurchase of common stock, $332.5 million of dividend payments to stockholders and $142.1 million of payment for settlement of our 2017 Convertible Notes, which were partially offset by $32.8 million of proceeds from issuance of common stock under employee stock plans.

Accounts Receivable

Accounts receivable decreased by $63.5 million and DSO decreased to 38 days at April 1, 2017 from 52 days at April 2, 2016. The decrease was primarily due to timing of customer shipments and collections.

Inventories

Inventories increased to $227.0 million as of April 1, 2017 from $178.6 million as of April 2, 2016, while combined inventory days at Xilinx and distribution increased to 127 days at April 1, 2017 from 109 days at April 2, 2016. We attempt to maintain

39


sufficient levels of inventory in various product, package and speed configurations in order to keep lead times short and to meet forecasted customer demand as well as address potential supply constraints. Conversely, we also attempt to minimize the handling costs associated with maintaining higher inventory levels and to fully realize the opportunities for cost reductions associated with architecture and manufacturing process advancements. We continually strive to balance these two objectives to provide excellent customer response at a competitive cost.

Property, Plant and Equipment and Other Intangibles

During fiscal 2017, we invested $72.1 million in property, plant and equipment and other intangibles, as compared to $34.0 million in fiscal 2016. Primary investments in fiscal 2017 were for building improvements, computer equipment and equipment related to the support of our new products development and infrastructures.

Current Liabilities

Current liabilities decreased to $897.2 million at the end of fiscal 2017 from $944.4 million at the end of fiscal 2016. The change was primarily due to a payment of $142.1 million for conversion of our 2017 Convertible Notes, which was partially offset by increases of $50.0 million in other accrued liabilities and $22.3 million in accrued payroll and related liabilities.

Temporary and Stockholders' Equity

Temporary and stockholders' equity decreased $93.7 million during fiscal 2017 from $2.60 billion in fiscal 2016 to $2.51 billion in fiscal 2017. The decrease was primarily due to repurchase of common stock of approximately $522.0 million, $332.5 million of payment of dividends to stockholders and $18.1 million of other comprehensive loss. These decreases were partially offset by $622.5 million in net income for fiscal 2017, $122.9 million of stock-based compensation, $32.8 million of net issuance of common stock under employee stock plans.

Liquidity and Capital Resources

Cash generated from operations is used as our primary source of liquidity and capital resources. Our investment portfolio is also available for future cash requirements as is our $400.0 million revolving credit facility entered into in December 2016 (expiring in December 2021). We are not aware of any lack of access to the revolving credit facility; however, we can provide no assurance that access to the credit facility will not be impacted by adverse conditions in the financial markets. Our credit facility is not reliant upon a single bank. There have been no borrowings to date under our existing revolving credit facility.

We repurchased 7.0 million shares of our common stock for approximately $474.3 million during fiscal 2018. During fiscal 2017, we repurchased 9.9 million shares of common stock for approximately $522.0 million. During fiscal 2018, we paid $353.1 million in cash dividends to stockholders, representing $1.40 per common share. During fiscal 2017, we paid $332.5 million in cash dividends to stockholders, representing $1.32 per common share. On April 25, 2018, our Board of Directors declared a cash dividend of $0.36 per common share for the first quarter of fiscal 2019. The dividend is payable on June 4, 2018 to stockholders of record as of May 15, 2018. Our common stock and debentures repurchase program and dividend policy could be impacted by, among other items, our views on potential future capital requirements relating to R&D, investments and acquisitions, legal risks, principal and interest payments on our debentures and other strategic investments.

We anticipate that existing sources of liquidity and cash flows from operations will be sufficient to satisfy our cash needs for the foreseeable future. We will continue to evaluate opportunities for investments to obtain additional wafer capacity, to procure additional capital equipment and facilities, to develop new products, and to potentially acquire technologies or businesses that could complement our business. However, the risk factors discussed in Item 1A and below could affect our cash positions adversely.

Contractual Obligations

The following table summarizes our significant contractual obligations as of March 31, 2018 and the effect such obligations are expected to have on our liquidity and cash flows in future periods. This table excludes amounts already recorded on our consolidated balance sheet as accounts payable, income taxes payable and other accrued liabilities as of March 31, 2018.

40


 
 
Payments Due by Period
(In millions)
 
Total
 
Less than 1 year
 
1-3 years
 
3-5 years
 
More than 5 years
Operating lease obligations (1)
 
$
67.6

 
$
8.9

 
$
16.4

 
$
10.5

 
$
31.8

Inventory and manufacturing-related purchase obligations (2)
 
157.8

 
157.8

 

 

 

Electronic design automation and other licenses (3)
 
39.5

 
21.8

 
9.7

 
5.3

 
2.7

Other ongoing operations (4)
 
28.9

 
7.9

 
19.5

 
1.0

 
0.5

2019 and 2021 Notes-principal and interest (5)
 
1,054.6

 
524.6

 
530.0

 

 

2024 Notes-principal and interest (5)
 
864.2

 
14.7

 
44.2

 
44.2

 
761.1

Tax obligations (6)
 
512.5

 

 
89.1

 
89.1

 
334.3

Total
 
$
2,725.1

 
$
735.7

 
$
708.9

 
$
150.1

 
$
1,130.4


(1)
We lease some of our facilities, office buildings and land under non-cancelable operating leases that expire at various dates through November 2035. Rent expense, net of rental income, under all operating leases was approximately $3.9 million for fiscal 2018. See "Note 8. Commitments" to our consolidated financial statements, included in Item 8. "Financial Statements and Supplementary Data," for additional information about operating leases.

(2)
Due to the nature of our business, we depend entirely upon subcontractors to manufacture our silicon wafers and provide assembly and some test services. The lengthy subcontractor lead times require us to order the materials and services in advance, and we are obligated to pay for the materials and services when completed. We expect to receive and pay for these materials and services in the next three to six months, as the products meet delivery and quality specifications.

(3)
As of March 31, 2018, we had $26.2 million of non-cancelable license obligations to providers of electronic design automation software and hardware/software maintenance and $13.3 million of other license expiring at various dates through March 2024.

(4)
As of March 31, 2018, we had $28.9 million commitments primarily related to open purchase orders from ordinary operations.

(5)
For purposes of this table we have assumed the outstanding principal of our debentures will be paid on maturity dates, which is March 15, 2019 for the 2019 Notes, March 15, 2021 for the 2021 Notes and June 1, 2024 for the 2024 Notes. See "Note 12. Debt and Credit Facility" to our consolidated financial statements, included in Item 8. "Financial Statements and Supplementary Data," for additional information about our debentures.

(6)
Tax obligations represent the future cash payments related to the one-time transition tax that resulted from the enactment of the TCJA as described in “Note 14. Income Taxes” to our consolidated financial statements, included in “Part II. Item 8, Financial Statements and Supplementary Data.”

As of March 31, 2018, $523.9 million of liabilities were classified as long-term income taxes payable in the consolidated balance sheets. Of the $523.9 million, $512.5 million was the estimated long-term portion of the one-time transition tax that resulted from the enactment of the TCJA. The remaining $11.4 million of the long-term income taxes payable is for uncertain tax positions and related interest and penalties. Since the Company is unable to reasonably estimate the timing of settlements and any future payments related to uncertain tax positions, these liabilities have been excluded from the contractual obligations table above.

Off-Balance-Sheet Arrangements

As of March 31, 2018, we did not have any significant off-balance-sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

Recent Accounting Pronouncements

See "Note 2. Summary of Significant Accounting Policies and Concentrations of Risk" to our consolidated financial statements, included in Item 8. "Financial Statements and Supplementary Data," for information about recent accounting pronouncements, including the expected dates of adoption and estimated effects, if any, on our consolidated financial statements.

ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

Our exposure to interest rate risk relates primarily to our investment portfolio, which consists of fixed income securities with a fair value of approximately $2.18 billion as of March 31, 2018. Our primary aim with our investment portfolio is to invest available cash while preserving principal and meeting liquidity needs. Our investment portfolio includes, mortgage-backed securities, commercial mortgage-backed securities, financial institution securities, non-financial institution securities, student loan auction rate securities, U.S. and foreign government and agency securities, asset-backed securities, bank loans and debt mutual funds. In

41


accordance with our investment policy, we place investments with high credit quality issuers and limit the amount of credit exposure to any one issuer based upon the issuer's credit rating. These securities are subject to interest rate risk and will decrease in value if market interest rates increase. A hypothetical 100 basis-point (one percentage point) increase or decrease in interest rates compared to rates at March 31, 2018 and April 1, 2017 would have affected the fair value of our investment portfolio by approximately $40.0 million and $60.0 million, respectively.

Credit Market Risk

The global credit markets may experience adverse conditions that negatively impact the values of various types of investment and non-investment grade securities. The global credit and capital markets may experience significant volatility and disruption due to instability in the global financial system, uncertainty related to global economic conditions and concerns regarding sovereign financial stability. Therefore, there is a risk that we may incur other-than-temporary impairment charges for certain types of investments should credit market conditions deteriorate. See "Note 4. Financial Instruments" to our consolidated financial statements, included in Item 8. "Financial Statements and Supplementary Data."

Foreign Currency Exchange Risk

Sales to all direct OEMs and distributors are denominated in U.S. dollars.

Gains and losses on foreign currency forward contracts that are designated as hedges of anticipated transactions, for which a firm commitment has been attained and the hedged relationship has been effective, are deferred and included in income or expenses in the same period that the underlying transaction is settled. Gains and losses on any instruments not meeting the above criteria are recognized in income or expenses in the consolidated statements of income as they are incurred.

We enter into forward currency exchange contracts to hedge our overseas operating expenses and other liabilities when deemed appropriate. As of March 31, 2018 and April 1, 2017, we had the following outstanding forward currency exchange contracts (in notional amount):
 
(In millions and U.S. dollars)
March 31, 2018

April 1, 2017
Singapore Dollar
$
24.9


$
22.0

Euro
39.0


18.6

Indian Rupee
62.5


31.1

British Pound
8.1


10.8

Japanese Yen
3.8


3.8

Chinese Yuan
8.3




$
146.6


$
86.3


As part of our strategy to reduce volatility of operating expenses due to foreign exchange rate fluctuations, we employ a hedging program with forward outlook of up to two years for major foreign-currency-denominated operating expenses. The outstanding forward currency exchange contracts expire at various dates through February 2020. The net unrealized gains, which approximate the fair market value of the forward currency exchange contracts, are expected to be recognized in the consolidated statements of income within the next two years.

Our investments in several of our wholly-owned subsidiaries are recorded in currencies other than the U.S. dollar. As the financial statements of these subsidiaries are translated at each quarter end during consolidation, fluctuations of exchange rates between the foreign currency and the U.S. dollar increase or decrease the value of those investments. These fluctuations are recorded within stockholders' equity as a component of accumulated other comprehensive income (loss). Other monetary foreign-denominated assets and liabilities are revalued on a monthly basis with gains and losses on revaluation reflected in net income. A hypothetical 10% favorable or unfavorable change in foreign currency exchange rates at March 31, 2018 and April 1, 2017 would have affected the annualized foreign-currency-denominated operating expenses of our foreign subsidiaries by less than $12.0 million for each year. In addition, a hypothetical 10% favorable or unfavorable change in foreign currency exchange rates compared to rates at March 31, 2018 and April 1, 2017 would have affected the value of foreign-currency-denominated cash and investments by less than $7.0 million and $5.0 million as of each date.


42


ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

XILINX, INC.
CONSOLIDATED STATEMENTS OF INCOME
 
 
Years Ended
(In thousands, except per share amounts)
March 31, 2018
 
April 1, 2017
 
April 2, 2016
Net revenues
$
2,539,004

 
$
2,349,330

 
$
2,213,881

Cost of revenues
756,368

 
708,216

 
671,907

Gross margin
1,782,636

 
1,641,114

 
1,541,974

Operating expenses:

 

 

Research and development
639,750

 
601,443

 
533,891

Selling, general and administrative
362,329

 
335,150

 
331,652

Amortization of acquisition-related intangibles
2,152

 
5,127

 
6,550

Executive transition costs
33,351

 

 

Total operating expenses
1,037,582

 
941,720

 
872,093

Operating income
745,054

 
699,394

 
669,881

Interest and other income (expense), net
5,357

 
(8,314
)
 
(33,056
)
Income before income taxes
750,411

 
691,080

 
636,825

Provision for income taxes
238,030

 
68,568

 
85,958

Net income
$
512,381

 
$
622,512

 
$
550,867

Net income per common share:

 

 

Basic
$
2.05

 
$
2.47

 
$
2.14

Diluted
$
1.99

 
$
2.32

 
$
2.05

Shares used in per share calculations:

 

 
 
Basic
249,595

 
252,301

 
257,184

Diluted
257,960

 
268,813

 
268,667


See notes to consolidated financial statements.



43


XILINX, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 
Years Ended
(In thousands)
March 31, 2018
 
April 1, 2017

April 2, 2016
Net income
$
512,381

 
$
622,512

 
$
550,867

Other comprehensive income (loss), net of tax:


 


 


Net change in unrealized losses on available-for-sale securities
(8,211
)
 
(12,712
)
 
(916
)
Reclassification adjustment for (gains) losses on available-for-sale securities
349

 
(3,119
)
 
(106
)
Net change in unrealized gains (losses) on hedging transactions
5,517

 
(1,296
)
 
15,004

Reclassification adjustment for (gains) losses on hedging transactions
(4,655
)
 
1,701

 
(7,225
)
Cumulative translation adjustment, net
2,375

 
(2,624
)
 
(2,239
)
Other comprehensive income (loss)
(4,625
)
 
(18,050
)
 
4,518

Total comprehensive income
$
507,756

 
$
604,462

 
$
555,385


See notes to consolidated financial statements.


44


XILINX, INC.
CONSOLIDATED BALANCE SHEETS
 
(In thousands, except par value amounts)
March 31, 2018
 
April 1, 2017
ASSETS

 

Current assets:

 

Cash and cash equivalents
$
2,179,328

 
$
966,695

Short-term investments
1,268,242

 
2,354,762

Accounts receivable, net of allowances for doubtful accounts of $3,170 and $3,200 in 2018 and 2017, respectively
372,144

 
243,915

Inventories
236,077

 
227,033

Prepaid expenses and other current assets
88,695

 
87,711

Total current assets
4,144,486

 
3,880,116

Property, plant and equipment, at cost:


 


Land
65,298

 
65,298

Buildings
343,373

 
339,923

Machinery and equipment
395,318

 
383,681

Furniture and fixtures
51,034

 
50,556


855,023

 
839,458

Accumulated depreciation and amortization
(550,906
)
 
(535,633
)
Net property, plant and equipment
304,117

 
303,825

Long-term investments
97,896

 
116,288

Goodwill
162,421

 
161,287

Acquisition-related intangibles, net
4,123

 
3,576

Other assets
342,644

 
275,440

Total Assets
$
5,055,687

 
$
4,740,532

LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS’ EQUITY

 

Current liabilities:

 

Accounts payable
$
98,999

 
$
108,293

Accrued payroll and related liabilities
206,367

 
176,601

Income taxes payable
47,713

 
6,309

Deferred income on shipments to distributors
25,166

 
54,567

Other accrued liabilities
59,772

 
95,098

Current portion of long-term debt
499,186

 
456,328

Total current liabilities
937,203

 
897,196

Long-term debt
1,214,440

 
995,247

Deferred tax liabilities
75

 
317,639

Long-term income taxes payable
523,864

 
4,503

Other long-term liabilities
49,870

 
16,908

Commitments and contingencies (Note 8 and Note 16)

 

Temporary equity (Note 12)

 
1,406

Stockholders' equity:

 

Preferred stock, $.01 par value; 2,000 shares authorized; none issued and outstanding

 

Common stock, $.01 par value; 2,000,000 shares authorized; 253,377 and 248,027 shares issued and outstanding in 2018 and 2017, respectively
2,534

 
2,480

Additional paid-in capital
878,672

 
803,522

Retained earnings
1,483,538

 
1,726,312

Accumulated other comprehensive loss
(34,509
)
 
(24,681
)
Total stockholders’ equity
2,330,235

 
2,507,633

Total Liabilities, Temporary Equity and Stockholders’ Equity
$
5,055,687

 
$
4,740,532

See notes to consolidated financial statements.

45


XILINX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Years Ended
(In thousands)
March 31, 2018
 
April 1, 2017
 
April 2, 2016
Cash flows from operating activities:

 

 
 
Net income
$
512,381

 
$
622,512

 
$
550,867

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

Depreciation
46,438

 
45,423

 
50,828

Amortization
50,316

 
17,203

 
17,613

Stock-based compensation
153,815

 
122,858

 
111,984

Net (gain) loss on sale of available-for-sale securities
689

 
(3,532
)
 
(370
)
Amortization of debt discount on convertible debentures
2,548

 
11,692

 
12,048

Provision for deferred income taxes
(353,292
)
 
67,482

 
44,128

Others
7,500

 
1,698

 
2,000

Changes in assets and liabilities:

 

 

Accounts receivable, net
(128,229
)
 
63,543

 
(60,843
)
Inventories
(9,176
)
 
(48,244
)
 
52,323

Prepaid expenses and other current assets
(9,727
)
 
(1,000
)
 
(1,261
)
Other assets
(22,243